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THE  TRUST  PROBLEM 


THE  TRUST  PROBLEM 


BY 


EDWARD  DANA  DURAND,  Ph.D. 

PROFESSOR  OF  STATISTICS   IN  THE   UNIVERSITY 

OF  MINNESOTA,  RECENTLY  DIRECTOR  OF 

THE   UNITED  STATES   CENSUS 


CAMBRIDGE 
HARVARD  UNIVERSITY  PRESS 

LONDON:   HUMPHREY  MILFORD 
Oxford  Univebsity  Pbess 

1915 


*5^<b^5 


REPRINTED  FROM  THE 
QUARTERLY  JOURNAL  OF  ECONOMICS 

COPYRIGHTED,  1914 
BY  HARVARD  UNIVERSITY 


H3) 


CONTENTS 

Chapter  i 

PAGE 

The  Necessity  of  Prohibition  or  Regulation       ....      9 

CHAPTER  II 
The  Possibility  of  Preventing  Combination 31 

CHAPTER  III 
Difficulties  of  Regulating  Combinations 46 

/CHAPTER  IV 
The  Alleged  Advantages  of  Combination 60 

CHAPTER  V 

The  Trust  Legislation  of  1914       86 

I.   Unfair  Competitive  Methods 88 

II.  New  Provisions  on  Combinations  in  Restraint 

of  Trade 95 

III.  Mismanagement  of  Railroads 103 

IV.  The  Federal  Trade  Commission 105 

APPENDIX 

Federal  Laws  Relating  to  Trusts  and  Allied  Matters  .    .115 

I.  Sherman  Anti-Trust  Law 115 

II.  Anti-Trust  Act  of  1914 117 

III.  Trade  Commission  Act 131 

IV.  Combinations  in  Import  Trade 141 

V.  Use  of  the  Panama  Canal 142 

VI.  Expedition  of  Proceedings 143 

VII.  Witnesses  and  Testimony 144 

5 


THE  TRUST  PROBLEM 


CHAPTER  II 

THE  POSSIBILITY  OF  PREVENTING  COMBINATION 

If  the  conclusion  is  reached  that  there  is  need  for  either 
regulation  of  combinations  or  prohibition  of  them,  the 
question  immediately  arises  whether  the  latter  course  is 
practicable.  Can  the  government  successfully  break 
up  existing  combinations  and  prevent  the  formation  of 
others  ? 

The  limited  experience  of  this  country  thus  far  in 
"  trust  busting  "  is  often  cited  as  proving  the  impossi- 
bility of  destroying  the  trusts.  In  some  cases  the  so- 
called  dissolutions  have  in  fact  failed  to  bring  about 
real  competition.  Yet  in  some  other  instances  a  con- 
siderable measure  of  competition  has  apparently  been 
restored.  As  regards  the  great  majority  of  the  cases  no 
information  concerning  the  results  is  available.  So 
little  time  has  elapsed  since  the  anti-trust  laws  began 
to  be  enforced  with  some  vigor  that  a  pessimistic 
judgment  as  to  the  ultimate  outcome  is  premature. 
Moreover,  the  methods  of  dealing  with  the  combinations 
thus  far  have  been  relatively  gentle  and  the  results  do 
not  justify  a  conclusion  as  to  what  might  be  accom- 
plished by  a  really  rigorous  policy  of  repression. 

The  opinions  of  most  people  concerning  the  results 
accomplished  under  the  Sherman  anti-trust  act  are 
based  on  a  few  conspicuous  cases.  They  do  not  even 
know  that  there  have  been  scores  of  prosecutions  and 
suits  in  equity  under  that  act,  the  great  majority  of 

31 


32  THE  TRUST  PROBLEM 

which  have  been  decided  in  favor  of  the  government. 
While  the  earhest  decisions  of  the  Supreme  Court 
tended  greatly  to  narrow  the  scope  of  the  Sherman  law, 
later  decisions  have  turned  increasingly  in  the  other 
direction.  The  court  has  not  only  upheld  the  constitu- 
tionality of  the  act  in  every  respect,  but  it  has  held  its 
broad  terminology  applicable  to  almost  —  but  not 
quite  —  every  specific  form  of  combination  or  of  con- 
tract in  restraint  of  trade,  and  to  almost  every  monop- 
olistic practice  of  which  complaint  is  made.  Supposed 
rights  of  property  and  of  contract  have  in  considerable 
measure  been  brushed  aside  by  the  court  when  urged  as 
a  defense  for  monopoly.  The  Sherman  Act  needs  com- 
paratively little  modification  with  respect  to  its  scope 
and  its  definitions.  The  state  courts  also  have  shown 
vigor  in  enforcing  the  various  state  anti-trust  laws. 

Yet  repression  has  not  thus  far  taken  drastic  fonn.' 
It  is  one  thing  for  the  courts  to  adopt  a  broad  policy 
in  holding  a  combination,  contract  or  practice  unlawful. 
It  is  quite  another  to  use  vigorous  measures  to  punish  it 
or  prevent  its  recurrence.  Thus  far  there  has  been 
scarcely  a  single  instance  of  imprisonment  for  violation 
of  either  state  or  federal  anti-trust  laws.  Juries  have 
not  shown  a  disposition  to  convict  where  imprisonment 
was  the  necessary  penalty,  or  where  they  believed  that 
the  judges  would  probably  impose  that  penalty.  Where 
judges  have  had  a  choice  between  fining  and  imprisoning 
offenders,  they  have  uniformly  inflicted  the  fine.  In 
fact,  many  of  the  fines  have  been  unreasonably  light, 
in  some  cases  far  less  than  the  profits  which  the  com- 
bination had  gained  through  violation  of  the  law. 

It  would  have  been  harsh  to  imprison  men  in  the  first 
campaign  against  the  trusts  under  the  Sherman  law. 


POSSIBILITY  OF  PREVENTION  33 

The  law  had  long  been  allowed  to  remain  a  dead  letter. 
Business  men  generally  did  not  look  upon  monopolistic 
combinations  or  practices  as  immoral.     Hence  admin- 
istrative officers,  judges  and  juries  were  justified  in 
leniency.     It  does  not  follow  that  leniency  is  desirable 
for  the  future,  or  that  the  people  will  be  disposed  to 
tolerate  it.      Now  that  the  public  has  shown  that  it 
means  business  in  attacking  combinations  and  monop- 
oUes,  and   that   the  meaning  of  the  laws  is  clearly 
estabhshed  and  generally  known,  men  who  form  com- 
binations, make  contracts  in  restraint  of  trade,  or  pursue 
monopolistic  practices,  know  that  they  do  so  at  their 
peril,  and  severe  punishments  will  be  perfectly  proper. 
If  necessary,  the  anti-trust  laws  could  be  so  amended 
as  to  make  imprisonment  the  only  penalty  in  criminal 
cases,  or  to  increase  greatly  the  minmium  and  maxi- 
mum fines.     A  vigorous  enforcement  of  anti-trust  laws, 
especially  by  imposing  prison  sentences,  would  virtually 
stop  the  more  formal  combinations  and  contracts  in 
restraint  of  trade  as  well  as  the  more  obvious  methods 
of  unfair  competition.     The  average  business  man  fears 
the  j  ail  mightily.     Very  few  are  deliberate  law-breakers. 
Tho  some  secret  combinations  in  plain  violation  of  the 
laws  might  be  attempted  even  in  the  face  of  severe 
punishment  if  discovered,  they  would  probably  be  very 
few.      The  question  whether  informal  understandings 
could  be  prevented  and  whether  genuine  and  active 
competition    could    be    brought    about    is,    however, 
different  and  will  be  considered  later. 

A  large  proportion  of  the  proceedings  under  the  Sher- 
man act  have  not  been  criminal  indictments,  but  bills 
in  equity  seeking  injunctions.  In  a  few  cases  the  same 
combination  has  been  pursued  both  criminally  and  in 


34  THE  TRUST  PROBLEM 

equity.  The  injunction  is  under  certain  conditions  a 
very  necessary  device  for  enforcing  the  statute.  It  is 
difficult  to  see  how  a  closely  knit  trust  like  the  Standard 
Oil  Company  could  be  satisfactorily  broken  up  without 
an  order  of  the  court  as  to  the  method  of  doing  so. 
Merely  to  impose  penalties  upon  a  trust  or  its  managers, 
and  to  leave  them  to  devise  means  of  dissolving  it, 
would  often  open  the  door  for  endless  litigation  among 
the  members  and  stockholders  of  the  combination.  A 
pool,  a  contract  in  restraint  of  trade,  a  monopolistic 
practice  can  be  discontinued  forthwith.  In  attacking 
these,  a  prosecuting  officer  has  his  choice  between 
criminal  and  equity  proceedings.  An  injunction 
against  them  does  little  to  add  to  the  effectiveness  of 
the  penal  provisions  of  the  law  itself.  But  the  dissolu- 
tion of  a  trust  or  corporate  combination  requires 
positive  and  not  merely  negative  action.  It  takes  time 
and  skill.     It  calls  for  decrees  in  equity. 

Most  of  the  cases  under  the  Sherman  act  have  been 
not  against  trusts  proper,  but  against  pools,  contracts 
in  restraint  of  trade,  and  monopolistic  practices.  There 
is  reason  to  believe  that  much  has  been  accomplished 
in  cases  of  this  type,  tho  positive  evidence  is  for  the 
most  part  lacking.  Very  seldom  have  the  courts  been 
asked  to  punish  the  same  offenders  a  second  time,  or  to 
find  them  guilty  of  contempt  in  violating  injunctions. 
It  is  perfectly  easy  for  the  separate  concerns  which 
agreed  together  in  a  pool  and  which  theretofore  were 
competitors  to  resume  competition.  In  the  past  many 
a  pool  has  dissolved  itself,  or  fallen  asunder  without 
legal  action.  I  have  no  doubt  whatever  that  most  of 
the  pools,  contracts  in  restraint  of  trade  and  monop- 
olistic practices  against  which  the  law  has  been  invoked 


POSSIBILITY  OF  PREVENTION  35 

have  actually  been  discontinued  in  form,  and  a  good 
many  of  them  in  substance. 

In  the  more  familiar  cases  against  the  Northern 
Securities,  Standard  Oil  and  American  Tobacco  combi- 
nations, the  court  had  to  deal  with  holding  companies. 
The  oil  and  tobacco  trusts  in  particular  were  not  mere 
assemblages  of  separate  concerns.  Each  was  a  working, 
organic  unity.  The  Standard  Oil  combination  had 
been  in  existence  for  forty  years.  Most  of  the  con- 
stituent corporations  whose  stocks  were  controlled  by 
the  Standard  Oil  Company  of  New  Jersey  had  never 
been  independent;  they  were  children  of  the  parent 
concern  by  birth  and  not  by  adoption.  The  separate 
corporations  were  maintained  merely  for  legal  conven- 
ience. Very  few  of  the  men  who  managed  them  had  ever 
had  experience  with  competition  against  one  another. 
The  tobacco  trust  was  but  httle  less  firmly  knit  together. 

To  establish  competition  among  the  parts  of  the  oil 
and  tobacco  trusts  was  thus  of  necessity  a  difficult 
task  by  any  method.  The  method  actually  pursued 
by  the  courts  in  these  cases  was  wholly  inadequate  to 
the  situation.  Indeed,  that  method  was  not  adequate 
even  for  the  much  easier  task  of  breaking  up  the  com- 
bination of  railroads  formed  under  the  Northern  Securi- 
ties Company,  a  combination  in  which  each  railroad  was 
a  distinct  entity  and  not  an  essential  member  of  a 
unified  whole. 

In  each  of  these  three  cases  the  decree  of  the  court 
permitted  the  holding  corporation  to  divide  the  shares 
of  the  various  constituent  companies  pro  rata  among 
the  stockholders  of  the  holding  company.  A  person 
who  held  one-tenth  of  the  stock  of  the  Standard  Oil 
Company  of  New  Jersey,  for  example,  became  there- 


36  THE  TRUST  PROBLEM 

after  the  holder  of  one-tenth  of  the  stock  of  each  of  the 
former  subsidiary  companies.  To  be  sure,  the  decree 
prohibited  the  use  of  hquidating  certificates  or  other 
evidences  of  joint  ownership  in  two  or  more  of  the  sub- 
sidiaries, as  well  as  other  formal  devices  for  securing 
unity  of  control.  The  several  companies,  their  officers, 
and  directors  were  enjoined  from  agreeing  together  as 
to  the  conduct  of  business  in  such  a  way  as  to  restrain 
trade.  There  was  no  prohibition,  however,  against  the 
election  of  the  same  persons  as  directors  or  officers  of 
two  or  more  of  the  companies. 

It  is  difficult  to  see  why  it  should  be  anticipated  that 
changes  in  the  ownership  of  the  stock  thus  distributed 
would  take  place,  within  any  reasonable  length  of  time, 
such  as  would  destroy  the  substantial  community  of 
interest.  John  D.  Rockefeller  had  owned  about  one- 
fourth  of  the  stock  of  the  Standard  Oil  Company  of 
New  Jersey.  A  very  small  number  of  men  had  con- 
trolled a  majority  of  the  stock.  These  same  men  now 
control  a  majority  of  the  stocks  of  the  segregated  com- 
panies. What  possible  motive  have  they  for  selling 
stocks  in  one  of  the  companies  rather  than  in  another  ? 
Rather  is  it  to  be  expected  that  they,  and  their  heirs 
after  them,  will  in  general  continue  to  hold  all  of  these 
stocks,  or,  if  they  do  dispose  of  any,  will  dispose  of 
equal  proportions  in  each  of  the  companies.  Changes 
are  perhaps  more  likely  to  take  place  in  the  ownership 
of  the  smaller  blocks  of  shares;  but  these  have  no 
influence  in  the  control  of  corporations.  So  long  as 
there  is  a  community  of  ownership  in  the  shares,  formal 
agreement  among  the  several  corporations  of  the  Stand- 
ard Oil  group  regarding  prices,  output  or  other  matters 
is  by  no  means  necessary  to  insure  substantial  harmony 


POSSIBILITY  OF  PREVENTION  37 

in  operation.      No  man  naturally  competes  against 
himself. 

The  situation  with  respect  to  the  former  constituent 
companies  of  the  Northern  Securities  Company  and  the 
American  Tobacco  Company  is  the  same  as  with  respect 
to  the  Standard  companies. 

This  method  of  dissolving  trusts,  —  by  leaving  the 
ownership  of  all  the  constituent  parts  to  the  same  per- 
sons that  owned  the  former  controlling  corporation,  — 
can  hardly  be  characterized  by  any  other  word  than 
farcical.  It  rests  on  the  false  assumption  that  a  cor- 
poration has  motives  and  ideas  different  from  those  of 
the  persons  who  own  it.  The  courts  have  repeatedly 
asserted  that,  in  judging  of  the  existence  or  the  legality 
of  a  combination  in  restraint  of  trade,  they  must  and 
will  look  beneath  mere  forms,  and  will  consider  the 
essence,  the  purpose  of  the  men  who  conspire  beneath 
the  cloak  of  the  corporation.  In  making  the  decrees  of 
dissolution  in  these  leading  trust  cases,  however,  the 
courts  have  dealt  with  form  rather  than  with  substance. 

There  would  be  no  insuperable  difficulty  in  adopting 
a  more  effective  method  of  dissolving  such  closely-knit 
trusts.  The  stockholders  of  the  controlling  corporation 
could  be  required  to  apportion  the  securities  or  proper- 
ties held  by  it  among  themselves  in  such  a  way  that  no 
one  should  have  an  interest  in  more  than  a  single  part. 
Such  a  method  of  dissolution  might  not  immediately 
restore  competition,  but  it  would  at  least  render  com- 
petition possible  and  ultimately  probable.  Of  course, 
the  procedure  suggested  would  not  be  altogether  easy. 
There  might  be  bickerings  among  the  stockholders  as 
to  the  relative  values  of  the  several  constituent  parts, 
particularly  in  view  of  the  fact  that  such  values  after 


38  THE  TRUST  PROBLEM 

the  dissolution  of  the  combination  might  bear  a  different 
relation  to  one  another  from  those  obtaining  under  the 
combination.  If  the  court  or  the  administrative 
authorities  had  to  undertake  the  task  of  valuing  the 
constituent  properties  for  the  purpose  of  such  dissolu- 
tion, much  expert  investigation  would  be  required. 
But  the  thing  is  quite  possible.  It  involves  little  more 
difficulty  or  more  likelihood  of  injustice  than  is  involved 
in  the  valuation  of  stocks  and  properties  of  constituent 
concerns  at  the  time  they  enter  a  combination.  The 
managers  of  the  trust  itself  could  be  required  to  take  the 
initiative  in  working  out  such  a  scheme  of  dissolution. 

I  do  not  propose  to  discuss  the  constitutionality  of 
such  a  procedure.  However,  the  increasing  liberality 
of  the  courts  in  putting  the  public  interest  above  the 
rights  of  property  seems  to  hold  a  promise  that  they 
might  uphold  a  provision  of  law  requiring  such  a  method 
of  dissolution  of  monopolistic  holding  companies  and 
prohibiting  community  of  stock  ownership  where  it 
tends  to  monopoly.  If  some  injury  resulted  to  inves- 
tors it  would  be  proper  to  remind  them  that  when  they 
entered  into  an  unlawful  combination,  or  bought  its 
securities,  they  knowingly  incurred  the  risk  of  loss 
through  government  intervention.  Surely  it  would  be 
strange  if  the  law  should  avail  to  fine  or  imprison  those 
who  form  a  trust  and  yet  be  powerless  to  effect  a  real 
dissolution  of  such  a  combination. 

In  this  connection  it  is  worthy  of  note  that  the  decree 
of  the  Court  in  the  recent  Union  Pacific  case  did  not 
authorize  the  distribution  of  the  shares  of  the  Southern 
Pacific  Company  held  by  the  Union  Pacific  among  the 
stockholders  of  the  latter.  The  decree  declared  that 
such  stock  should  be  disposed  of  only  with  the  approval 


POSSIBILITY  OF  PREVENTION  39 

of  the  Court.  As  a  matter  of  fact,  a  large  block  of  the 
Southern  Pacific  stock  was  turned  over  to  the  Penn- 
sylvania Railroad. 

As  may  be  inferred  from  the  preceding  discussion,  I 
do  not  believe  any  important  measure  of  competition 
exists  today  among  the  companies  which  formerly  were 
controlled  by  the  Northern  Securities,  oil,  and  tobacco 
combinations.  It  is  not  in  human  nature  that  it  should 
exist  under  the  conditions.  Moreover,  there  is  no  out- 
ward evidence  that  competition  has  been  restored  as  a 
result  of  the  decrees  in  these  three  cases.  It  is  true 
that  a  very  active  campaign  of  advertising  has  recently 
been  conducted  by  the  companies  into  which  the 
tobacco  trust  was  divided,  but  this  does  not  necessarily 
mean  competition  among  them.  Even  in  the  days  of 
its  strongest  hold  on  the  trade,  the  American  Tobacco 
Company  was  a  great  advertiser,  both  for  the  purpose 
of  maintaining  the  popularity  of  its  brands  as  against 
outside  competitors  and  for  the  purpose  of  stimulating 
consumption. 

We  must  conclude,  therefore,  that,  until  we  have 
tried  more  vigorous  measures  than  have  been  thus  far 
employed,  despair  as  to  the  possibility  of  restoring 
competition  among  the  constituents  of  a  trust  is 
unwarranted. 

Difficult  as  it  may  be  to  break  up  trusts  already 
formed  and  firmly  knit  together,  there  seems  no  serious 
difficulty  in  preventing  by  law  the  formation  of  new 
trusts.  Indeed,  it  is  noteworthy  that  since  the  govern- 
ment began  somewhat  actively  to  bring  proceedings 
under  the  Sherman  anti-trust  act,  almost  no  trusts  have 
been  organized.  If  a  proper  control  over  the  organiza- 
tion of  corporations  and  over  their  acquisition  of  prop- 


40  THE  TRUST  PROBLEM 

erty  and  securities  were  exercised  by  the  states  and  by 
the  federal  government,  the  attempt  to  organize  new 
trusts  could  be  nipped  in  the  bud.  Herein  lies  one  of 
the  strongest  justifications  for  the  creation  of  the  new- 
federal  trade  commission. 

It  would  appear  from  the  preceding  discussion  that 
there  is  no  serious  difficulty  in  destroying  and  prevent- 
ing by  law  the  more  formal  pools  and  contracts  in 
restraint  of  trade,  or  in  preventing  the  formation  of  new 
trusts ;  nor  even  any  insuperable  difficulty  in  effectively 
breaking  up  trusts  already  organized.  There  remains 
the  question  whether,  in  the  absence  of  formal  combina- 
tions and  contracts  in  restraint  of  trade,  those  of  an 
informal  character,  which  the  law  cannot  reach,  will 
persist  and  will  possess  the  power  seriously  to  injure  the 
public.  It  is,  of  course,  impossible  to  compel  people 
to  compete,  in  the  sense  of  attempting,  by  the  lower- 
ing of  prices  or  otherwise,  to  get  all  the  trade  they 
can.  The  law  cannot  punish  concerns  each  of  which, 
without  any  written  or  oral  agreement,  takes  merely 
the  business  which  comes  to  it  at  the  prices  which  it 
considers  fair. 

Those  who  believe  it  impossible  to  maintain  competi- 
tion in  modern  industry  urge  that  the  losses  from  unreg- 
ulated competition  are  so  severe  that  business  men  and 
investors  will  do  everything  possible  to  escape  them. 
They  point  to  the  experience  of  the  railroads.  Rail- 
road rate  wars  often  reduced  the  competing  lines  to 
poverty  or  bankruptcy,  and  all  but  forced  them  into 
pools.  The  fierceness  of  railroad  competition  is  due 
primarily  to  the  fact  that  the  transportation  business 
is,  at  least  up  to  a  certain  point  in  density  of  traffic,  one 


POSSIBILITY  OF  PREVENTION  41 

of  increasing  returns.  This  tempts  each  company  to 
increase  its  business  at  almost  any  cost.  Moreover,  it 
is  impossible  for  the  railroad  to  withdraw  its  investment, 
however  unprofitable  it  may  become.  It  is  urged  that 
manufacturing  industries  in  which  large  fixed  capital  is 
required  present  substantially  similar  conditions  in  both 
respects.  To  the  manufacturing  establishment  also, 
if  it  has  large  investment  in  plant,  the  fullest  possible 
operation  means  the  lowest  interest  cost  per  unit  of  out- 
put. In  industries  not  requiring  much  fixed  capital,  it 
is  possible  for  the  competitor  to  withdraw  if  the  business 
become  unprofitable,  thus  setting  a  limit  to  the  disas- 
trous effects  of  competition.  In  industries  with  large 
fixed  capital,  we  are  told,  it  is  impossible  for  any  one  to 
withdraw.  Consequently,  the  concern  which  is  losing 
most  from  competition  will  continue  to  cut  prices,  in  the 
hope  of  gaining  enough  business  to  pay  expenses  and 
prevent  absolute  loss  of  the  investment.  Thus,  it  is 
contended,  the  business  of  all  competitors  often  be- 
comes unprofitable,  and  the  temptation  to  combine,  for 
restoring  and  maintaining  prices,  becomes  well-nigh 
irresistible. 

If  the  conditions  were  as  serious  as  thus  depicted,  we 
should  feel  disposed  not  merely  to  give  up  the  struggle 
to  maintain  competition  in  our  leading  industries,  but 
even  to  encourage  combination.  Persistent  loss  from 
excessive  competition  is  intolerable.  Among  well- 
informed  and  unbiased  observers,  there  has,  therefore, 
developed  a  strong  feeling  in  favor  of  permitting  pooling 
and  community  of  interest  among  railroads. 

But  is  it  true  that  competition  in  manufacturing 
industries  tends  ordinarily  to  such  extreme  lengths  ? 
Are   the   conditions   in   any   appreciable   number   of 


42  THE  TRUST  PROBLEM 

industries  closely  similar  to  those  in  railroad  transporta- 
tion ?     This  seems  to  me  not  proved. 

In  the  first  place,  in  most  industries,  the  relative 
importance  of  fixed  capital  is  much  lower  than  with  the 
railroads  and  other  public  service  industries.  The 
capital  investment  of  the  railroads  of  the  United  States 
is  between  four  and  five  times  as  great  as  their  gross 
annual  revenue.  The  capital  investment  of  the  gas 
companies  and  of  the  electric  light  companies  bears 
about  the  same  ratio  to  their  gross  earnings.  On  the 
other  hand,  in  manufacturing  industries  taken  as  a 
whole,  the  census  returns  show  a  capital  investment  less 
than  the  annual  value  of  product.^  Even  in  the  steel 
industry,  which  is  one  of  exceptionally  large  fixed 
capital,  the  reported  value  of  capital  only  slightly 
exceeds  the  annual  value  of  output.  The  statistics  on 
which  these  statements  are  based  are  not  altogether 
reliable,  but  they  do  show  approximately  the  true 
relations.  Again,  the  principle  of  increasing  returns  in 
the  case  of  railroads  extends  in  large  measure  even  to 
operating  costs;  this  is  seldom  true  of  manufacturing 
concerns.  For  these  reasons  to  reduce  the  output  of 
a  manufacturing  plant  when  prices  are  unfavorable 
does  not  in  most  cases  increase  unit  costs,  including 
capital  charges,  to  any  such  extent  as  in  transportation. 
Finally,  in  railroad  competition  there  are  usually  only 
a  few  lines  involved.  Each  of  them  may  readily  have 
sufficient  capacity  to  handle  the  whole  competitive 
business.      In  most  manufacturing  industries,  on  the 

'  This  statement  with  regard  to  manufacturing  industries  is  based  upon  the  census 
of  1909,  which  gives  the  value  of  capital  as  $18,428,000,000  and  the  value  of  products  as 
$20,672,000,000.  The  latter  item  involves  much  duplication,  due  to  the  use  of  the 
products  of  one  plant  as  material  for  another;  but  it  is  proper  to  compare  this  gross 
value  with  that  of  the  capital.  For  if  a  manufacturing  concern  shuts  down  in  order  to 
avoid  less,  it  eliminates  its  entire  cost  of  materials,  whether  strictly  raw  materials  or  the 
partly  finished  product  of  other  manufacturing  concerns. 


POSSIBILITY  OF  PREVENTION  43 

other  hand,  plants  are  numerous.  The  individual  plant 
has  but  a  comparatively  small  fraction  of  the  total 
capacity.  Under  such  conditions  no  one  plant  can  by 
price  cutting  expect  to  increase  its  share  of  the  business 
in  any  such  proportion  as  the  railroad  can. 

For  these  reasons,  competition  of  a  really  destructive 
kind  is  much  less  likely  to  arise  in  manufacturing  indus- 
tries than  in  railroad  transportation.  It  follows  that 
the  motive  for  combination  is  less  powerful  in  the  former 
than  in  the  latter.  There  are  many  manufacturing  in- 
dustries today  in  which  we  find  neither  destructive  com- 
petition nor  combinations  in  restraint  of  competition. 

In  any  case,  even  tho  the  desire  to  suppress  competi- 
tion be  strong  among  business  men  in  manufacturing 
industries,  it  is  very  difficult  effectively  to  suppress  it 
when  combination  is  under  the  ban  of  the  law.  In- 
formal agreements  and  tacit  understandings  are  far  less 
effective  in  stopping  competition  than  the  more  formal 
and  definite  combinations  which  it  is  proposed  to  pro- 
hibit. It  is  not  easy  for  a  group  of  separate  concerns  to 
act  in  harmony,  to  refrain  from  competition.  This  is 
particularly  the  case  when  prices  are  at  a  high  level. 
If  each  concern  could  be  sure  that  its  competitor  was 
maintaining  prices  and  not  seeking  to  get  a  larger  pro- 
portion of  the  business,  tacit  combination  might  go  on 
peacefully.  But  the  temptation  to  shade  prices  and  get 
business  away  from  others  is  always  strong.  The  mere 
unfounded  suspicion  that  competitors  are  pursuing  this 
policy  often  leads  the  business  man  to  seek  to  protect 
his  trade  by  lowering  prices,  or  by  other  competitive 
measures.  If  once  the  bars  are  let  down  anywhere,  the 
whole  trade  is  likely  to  rush  into  the  field  of  active 
competition. 


44  THE  TRUST  PROBLEM 

The  history  of  combinations  in  the  past  is  full  of 
efforts  to  make  them  more  binding,  more  cohesive,  to 
prevent  more  effectively  the  internal  competition  that 
would  ever  break  forth.  Agreements  as  to  prices  were 
found  ineffective  without  systematic  measures  for 
dividing  output  or  profits.  Agreements  for  such  pool- 
ing of  business  or  profits  broke  down  unless  there  was 
efficient  machinery  for  enforcing  them,  backed  by  heavy 
penalties.  Despite  even  such  vigorous  methods,  many 
of  the  pools  were  not  strong  enough  to  prevent  competi- 
tion among  their  own  members.  It  was  largely  for  this 
reason  that  the  original  trust  form  of  organization,  and 
later  the  corporate  combination,  became  popular.  The 
difficulties  which  the  railroads  in  the  earlier  days  en- 
countered in  their  efforts  to  suppress  competition  among 
themselves  are  well  known;  and  this  despite  the  fact 
that  their  managers  knew  the  peculiar  risk  of  heavy 
losses  from  rate  wars.  The  conditions  which  made 
competition  so  disastrous,  which  offered  such  an  incen- 
tive to  combination,  themselves  rendered  the  prevention 
of  competition  peculiarly  difficult.  No  doubt,  a  large 
majority  of  business  men  would  prefer  to  combine 
with  one  another  in  order  to  exact  high  prices  from  the 
public.  It  has  already  been  suggested  that  if  combina- 
tion were  freely  permitted,  competition  would  very 
likely  be  eliminated  in  large  degree.  But  combination 
under  the  ban  of  the  law  is  a  very  different  thing  from 
combination  with  its  sanction. 

Those  who  hold  that  it  is  impossible  to  maintain 
competition  as  a  general  basis  of  business  are  called  on 
to  explain  the  fact  that  competition  does  exist  today 
in  a  large  proportion  of  the  field  of  production  and 
trade.      Many  as  are  the  more  formal  combinations, 


POSSIBILITY  OF  PREVENTION  45 

perhaps  even  more  numerous  the  informal  understand- 
ings among  business  concerns,  there  are  wide  fields  in 
which  real  competition  exists.  Can  any  one  deny,  for 
example,  that  the  mining  of  bituminous  coal,  or  the 
manufacture  of  cotton  goods,  of  boots  and  shoes,  of 
automobiles,  is  conducted  under  essentially  competitive 
conditions  ?  Is  not  the  same  true  of  a  large  part  of  the 
wholesale  and  retail  merchandizing  ?  The  advantages 
of  combination  to  its  members  are  so  well  known  that 
we  should  expect  to  find  competition  practically  elim- 
inated everywhere,  were  it  not  for  the  real  difficulties 
of  eliminating  it. 

There  is,  therefore,  no  occasion  for  despair  as  to  the 
suppression  of  trusts  and  pools.  Monopoly  is  not 
inevitable.  Competition  in  manufacturing  and  mercan- 
tile business  is  not  so  destructive  as  to  force  combination. 
The  failure  of  some  of  the  so-called  trust  dissolutions  to 
restore  competition  is  no  proof  that  more  rational  and 
more  vigorous  methods  of  enforcing  the  law  would  also 
fail  to  do  so.  Competition  has  been  restored  in  some 
cases  where  monopoly  once  reigned.  In  many  impor- 
tant industries  competition  has  never  succumbed. 

Hence  we  can  consider  on  their  merits  the  relative 
advantages  of  trust  prohibition  and  trust  regulation. 
Our  choice  is  not  foreclosed  by  the  impracticability  of 
the  former.  Is  a  trust  regime  superior  from  the  stand- 
point of  efficiency  to  a  regime  of  competition  ?  Is  it 
possible  effectively  to  regulate  the  prices  and  profits  of 
trusts  ?  What  would  be  the  ultimate  consequences  of  a 
policy  of  regulation  ?  These  questions  remain  to  be 
discussed. 


CHAPTER  III 

DIFFICULTIES  OF  REGULATING  COMBINATIONS 

In  the  preceding  lectures  we  have  undertaken  to  show 
that  it  is  necessary  either  to  prohibit  and  destroy  the 
trusts  and  pools  or  to  regulate  their  prices  and  profits. 
Merely  to  prohibit  unfair  competitive  methods  and  to 
deprive  combinations  of  special  privileges  would  not,  in 
all  probability,  remove  their  power  to  extort  monopoly 
prices.  We  further  sought  to  show  that  it  is  possible 
to  prevent  the  formation  of  combinations  having 
effective  monopoly  power,  and  possible  also  in  large 
measure  to  break  up  such  combinations  as  already 
exist.  The  American  people,  therefore,  are  in  a  position 
to  choose  between  the  policy  of  regulating  permitted 
trusts  and  pools,  and  the  policy  of  prohibiting  and 
destroying  them.  In  making  this  choice  they  must 
first  consider  what  would  be  the  difficulties  and  what 
the  probable  results  of  a  policy  of  regulation.  They 
must  then  consider  whether  the  advantages  of  combina- 
tions from  the  standpoint  of  efficiency  and  economy  are 
great  enough  to  justify  permitting  them  to  exist  despite 
the  difficulties  of  regulating  them. 

Few  of  those  who  have  advocated  the  policy  of  per- 
mitting combinations  to  exist  subject  to  regulation  by 
the  government  seem  to  have  given  much  thought  to 
the  magnitude  of  such  a  task,  its  difficulties,  or  its 
ultimate  outcome.  They  have  had  in  mind  the  com- 
paratively few  closely  knit  trusts  of  the  present  time, 
or  possibly  only  a  part  of  those  trusts.     They  have  had 


DIFFICULTIES   OF   REGULATION  47 

in  mind  particularly  the  so-called  ''  good  "  trusts  with 
their  alleged  superior  efficiency  and  their  more  or  less 
reasonable  policy  toward  the  public. 

In  the  first  place,  it  would  be  difficult  to  limit  the 
number  of  trusts  under  such  a  policy.  It  is,  of  course, 
conceivable  that  the  government  should  undertake  to 
suppress  combinations  in  general,  while  permitting  a 
few  particular  trusts  to  exist.  A  limited  number  of 
trusts  might  be  tolerated,  not  because  of  the  good 
motives  or  exceptional  ability  of  their  managers,  but 
because  of  special  economic  characteristics  of  the 
industries  concerned  which  tended  to  make  combination 
particularly  economical  or  to  make  the  maintenance  of 
competition  pecuharly  difficult.  Such  a  plan  would  not 
necessarily  lead  to  unreasonable  discrimination  between 
individuals  and  classes,  tho  to  determine  what  were  the 
extraordinary  conditions  justifying  the  existence  of  a 
trust  would  be  extremely  hard.  If,  however,  the 
people  once  concede  the  right  of  a  monopolistic  com- 
bination to  exist,  independently  of  extraordinary 
conditions,  a  sense  of  justice  should  apparently  compel 
them  to  permit  combinations  ad  libitum.  What  is 
sauce  for  the  goose  is  sauce  for  the  gander.  Under  no 
theory  of  justice  could  all  the  trusts  heretofore  organized 
be  permitted  to  continue  without  granting  permission 
to  organize  trusts  in  every  other  field.  Moreover,  if 
the  government  permitted  trusts  freely  to  organize,  it 
would  have  to  permit  pools  also,  at  least  until  it  was 
demonstrated  that  the  trusts  had  material  economies 
and  other  advantages  and  that  the  pools  had  no  such 
advantages. 

In  the  second  place,  it  would  seem  that  if  combina- 
tions having  power  to  restrain  trade  are  to  be  permitted 


48  THE  TRUST  PROBLEM 

at  all,  they  must  be  permitted  to  become  as  compre- 
hensive as  they  desire.  Why  should  a  combination 
not  be  allowed  to  take  over  100  per  cent  of  the  business 
in  its  field  quite  as  readily  as  90  or  80  or  70  per  cent  ? 
Very  few  persons  desire  to  prohibit  combinations  which 
control  only  a  small  proportion  of  a  given  industry  and 
which  possess  no  possible  monopoly  power;  but  if  we 
permit  that  limit  to  be  overstepped  at  all,  there  is  no 
Umit. 

One  can  only  speculate  how  numerous  and  how  com- 
prehensive the  trusts  and  pools  would  become  if  the 
policy  were  adopted  of  permitting  them  freely  but 
subjecting  them  to  regulation.  Presumably  the  dis- 
inclination to  submit  themselves  to  government  regu- 
lation would  prevent  business  men  from  forming 
combinations  as  universally  as  they  would  if  combina- 
tions were  permitted  without  regulation.  It  is  quite 
possible  that  the  field  of  combination  would  become 
immensely  great.  In  all  probability  it  would  become 
far  greater  than  at  present.  Beyond  question,  more- 
over, every  combination,  unless  prevented  by  the 
government,  would  take  in  just  as  large  a  proportion 
of  the  trade  as  could  be  persuaded  to  enter  it.  In  many 
cases  this  would  mean  the  entire  trade. 

If  combinations  were  freely  permitted  and  no  limit 
placed  upon  their  magnitude,  neither  actual  nor  poten- 
tial competition  would  be  an  adequate  check  upon 
prices  and  charges  for  service.  This  was,  I  think, 
sufficiently  demonstrated  in  the  first  lecture.  Govern- 
ment regulation  would  unquestionably  be  necessary. 

Some  have  suggested  that  regulation  would  be  com- 
paratively simple.  Good  trusts  would  be  left  alone 
and  only  bad  trusts  interfered  with,  and  the  fear  of 


DIFFICULTIES  OF  REGULATION  49 

government  intervention  would  make  most  of  the  trusts 
good.  The  government,  some  seem  to  think,  could 
let  the  trust  go  its  own  way  until  it  was  proved  to  have 
become  extortionate  or  to  have  used  unfair  competitive 
methods,  and  could  then  step  in  and  punish  its  officers, 
or  suspend  its  right  to  do  business  for  a  season,  or  even 
dissolve  it  altogether.  Such  a  course  is  fundamentally- 
inconsistent  with  the  principle  of  permitting  combina- 
tions at  all.  How  is  the  trust  manager  to  know  in 
advance  what  prices  or  what  practices  will  be  adjudged 
so  unreasonable  as  to  call  for  criminal  prosecution  ? 
What  advantage  would  there  be  in  breaking  up  a  trust 
the  first  time  it  went  too  far,  if  another  trust  could  be 
formed  in  its  place  the  next  day  ?  It  would  be  in- 
tolerable to  the  users  of  the  products  or  the  services 
of  a  trust  to  stop  its  business,  even  temporarily, 
as  a  punishment  for  unreasonable  prices  or  unfair 
methods  of  competition.  A  good  trust  may  become 
a  bad  trust  overnight.  Shall  it  be  a  lawful  or- 
ganization today  and  an  outlawed  wreck  tomorrow  ? 
Regulation  of  combinations  implies  continuity  of  the 
combinations. 

Even  if  the  government  adopted  the  policy  of  punish- 
ing trust  managers  or  breaking  up  combinations,  as  a 
penalty  for  extortionate  prices  and  unfair  practices,  it 
would  require  almost  as  thoro  and  continuous  investi- 
gation and  quite  as  difficult  judgment  on  the  part  of  the 
government  to  determine  when  to  inflict  such  penalties 
as  to  determine  the  proper  prices  and  practices  for  the 
future.  It  would  be  most  unjust  to  take  drastic  action 
against  a  trust  or  its  managers  without  possession  of 
most  detailed  knowledge  of  all  the  conditions. 

In  its  very  essence,  however,  regulation  implies,  not 


50  THE  TRUST  PROBLEM 

punishment  of  past  action,  but  prescription  of  future 
action.  This  means  simply  that  the  government,  if  it 
undertakes  to  regulate  the  trusts  and  combinations, 
will  ultimately  have  to  fix  their  prices  or  limit  their 
profits,  or  both.  After  all,  the  one  thing  in  which  the 
general  public  is  interested  is  the  reasonableness  of 
prices  and  charges.  The  prevention  of  combinations 
in  restraint  of  trade  and  of  unfair  competitive  methods 
are  not  ends  in  themselves.  There  is  no  way  to  insure 
reasonable  prices  under  monopoly  except  to  restrict 
them,  —  to  fix  them  outright,  or  to  hmit  the  profits  in 
such  a  way  as  to  remove  the  incentive  to  unreasonable 
prices. 

If  the  government  enters  upon  the  pohcy  of  fixing 
prices  and  profits  strictly,  ought  it  not  to  go  a  step 
further  and  guarantee  to  the  combinations  a  permanent 
monopoly,  protecting  them  against  competition  ?  It 
has  long  been  urged  by  the  owners  of  railroads  and  other 
public  service  industries  that  justice  to  investors 
demands  protection  against  competition  as  a  concomi- 
tant of  regulation  of  rates  and  charges.  The  public 
has  been  gradually  coming  to  accept  this  view.  If  for 
a  series  of  years  the  investor  in  trust  securities  has  had 
his  profits  held  down  to  a  low  percentage  by  govern- 
ment regulation,  it  is  hardly  fair  for  the  government  to 
permit  those  profits  to  be  still  further  lowered,  perhaps 
wholly  destroyed,  by  the  advent  of  a  competitor. 

Whatever  might  be  the  outcome  of  government 
regulation  in  this  respect,  there  can  be  no  doubt  of  the 
immense  difficulty  of  just  and  efficient  regulation  of  the 
prices  or  the  profits  of  industrial  combinations.  As 
already  shown,  the  field  to  be  covered  by  regulation 
would  probably  be  exceedingly  wide  and  diverse.     The 


DIFFICULTIES   OF   REGULATION  51 

federal  government  and  the  states  would  have  to 
maintain  elaborate  and  powerful  machinery  to  control 
the  combinations.  The  task  of  regulation  could  not 
possibly  be  left  to  the  courts,  lacking  as  they  are  in  the 
necessary  machinery  for  investigation  and  occupied 
as  they  are  with  many  other  duties. 

Consider  for  a  moment  the  nature  of  the  task  which 
would  confront  such  an  administrative  body.  In  the 
first  place,  it  would  have  to  possess  at  all  times  detailed 
information  regarding  all  the  concerns  under  its  juris- 
diction. It  could  not  rest  content  with  making  special 
investigations  from  time  to  time  on  its  own  initiative  or 
on  complaint.  Railroad  rates  and  the  charges  of  public 
service  corporations  are  ordinarily  comparatively  stable, 
and  properly  so;  but  the  prices  of  many  other  com- 
modities, if  not  of  most,  are  necessarily  variable.  The 
costs  of  materials  may  change  greatly  and  rapidly.  The 
conditions  of  demand  are  changeable.  Grave  injury 
might  be  done  to  the  public  during  the  time  required  for 
securing  information  on  which  to  base  action  if  such 
information  were  not  continuously  in  the  possession  of 
the  regulating  authority.  Even  annual  reports  would 
not  usually  be  adequate;  quarterly  or  monthly  data 
would  be  required. 

In  the  second  place,  the  amount  of  detail  involved 
would  be  enormous.  A  proper  fixing  of  prices  would 
require  complete  knowledge  of  the  costs  of  production 
and  of  the  amount  of  investment.  In  order  to  make 
sure  of  obtaining  accurate  information,  the  government 
would  have  to  prescribe  the  methods  of  accounting.  It 
would  be  impossible  to  prescribe  uniform  methods,  as 
is  done  by  the  Interstate  Commerce  Commission  in  the 
case  of  the  railroads.     The  bewildering  variety  of  con- 


52  THE  TRUST  PROBLEM 

ditions  in  the  different  industries  would  have  to  be 
provided  for.  On  the  basis  of  accounting  methods 
thus  prescribed,  detailed  reports  would  have  to  be 
made  to  the  government  and  these  would  have  to  be 
scrutinized  and  studied  with  utmost  care.  The  federal 
government  particularly  would  have  to  employ  a  vast 
corps  of  expert  accountants,  statisticians,  and  specialists 
familiar  with  the  peculiar  conditions  in  the  different 
industries. 

The  difficulties  of  cost  accounting  are  so  great  that 
many  even  of  the  largest  business  concerns  have  found 
it  impossible  to  ascertain  the  costs  of  their  products  on 
scientific  principles,  or  at  any  rate  have  considered  it  not 
worth  while  to  incur  the  necessary  expenses  for  that 
purpose.  The  business  concern  can  get  along  without 
accurate  knowledge  of  its  own  costs.  Its  prime  interest 
is  in  demand  atid  in  profits.  The  government,  however, 
in  fixing  prices,  must  know  all  about  costs  —  both  oper- 
ating costs  and  capital  charges.  They  are  the  very 
things  which  primarily  determine  the  reasonableness  of 
prices.  The  limiting  of  profits  would  require  somewhat 
less  detailed  information  than  the  limiting  of  prices,  but 
would  still  require  a  vast  mass  of  data. 

In  the  third  place,  the  determination  of  costs  and  of 
investment  for  the  purpose  of  fixing  prices  or  profits 
would  involve  immensely  difficult  problems  of  judg- 
ment. The  judgment  of  the  regulating  body  would  be 
constantly  challenged  by  the  combinations  and  the 
probable  result  would  be  endless  litigation.  The  proper 
allowance  for  depreciation  and  obsolescence,  the  proper 
apportionment  of  overhead  charges  among  different 
products  and  services,  the  proper  methods  of  valuing 
the    different    elements    of    investment,  —  these    and 


DIFFICULTIES   OF   REGULATION  53 

similar  matters  would  have  to  be  passed  upon  by  the 
regulating  authority.  Such  problems  are  difficult 
enough  as  they  confront  the  Interstate  Commerce  Com- 
mission, which  has  to  deal  with  one  kind  of  business 
only.  They  would  be  far  more  difficult  for  a  body  deal- 
ing with  multifarious  combinations  in  widely  differing 
industries. 

Even  if  the  regulating  authority  should  succeed  in 
working  out  a  satisfactory  determination  of  costs  of 
production  and  value  of  investment,  it  would  still  be 
beset  with  troubles  in  fixing  prices  or  limiting  profits. 
Demand  for  goods  is  variable  even  in  non-competitive 
industries.  Even  if  the  combinations  should  be  pro- 
tected against  competition  from  domestic  concerns, 
foreign  concerns  would  have  to  be  reckoned  with. 
Unchanging  prices  or  prices  bearing  an  unchanging 
relation  to  costs  would  not  be  practicable  in  mining, 
manufacturing  and  mercantile  business.  A  combina- 
tion might  at  times  be  justified  in  reducing  prices  and 
consequently  profits  below  a  normal  level  in  order  to 
stimulate  demand  and  keep  its  force  employed,  or  in 
order  to  meet  foreign  competition.  The  government 
would  have  then  to  determine  to  what  limit  prices  or 
profits  could  subsequently  be  advanced  in  order  to  offset 
these  reductions.  In  other  words,  the  government 
would  be  dealing  with  a  constantly  changing  problem  of 
demand,  just  as  the  manager  of  any  private  business 
does. 

Particularly  difficult  would  be  the  fixing  of  proper 
prices  for  products  produced  at  joint  cost.  Take 
petroleum,  for  example.  A  wide  variety  of  commodi- 
ties are  derived  from  the  one  raw  material,  crude  oil. 
Some  of  these  are  in  so  little  demand  that  they  must  be 


54  THE  TRUST  PROBLEM 

sold  for  less  than  the  price  of  crude  oil  itself.  Others 
are  in  great  demand  and  can  be  sold  for  high  prices. 
It  is  impossible  to  use  cost  as  a  basis  for  determining 
prices  of  the  specific  products.  The  relative  demand  for 
the  several  products  varies  from  day  to  day.  For  a 
regulating  body  to  determine  the  proper  relationship  of 
the  prices  of  these  joint  products  is  virtually  impossible. 
This  and  several  other  important  industries  would  have 
to  be  regulated,  if  at  all,  by  limiting  profits  rather  than 
prices. 

It  is  sometimes  suggested  that  the  same  problem  of 
joint  costs  confronts  the  Interstate  Commerce  Com- 
mission with  respect  to  the  relative  freight  rates  on 
different  commodities.  It  should  be  noted,  however, 
that  after  making  due  allowance  for  actual  and  measur- 
able differences  in  the  cost  of  transporting  different 
commodities,  the  Commission  could,  without  actually 
destroying  railroad  business,  fix  precisely  the  same  rate 
per  unit  for  every  class  of  commodities.  Such  a  policy 
is  by  no  means  unthinkable  and  might  be  better  than 
the  often  extraordinary  differences  which  now  exist. 
For  petroleum  products  on  the  other  hand,  —  and  the 
same  is  true  of  a  good  many  other  products  similarly 
produced  under  joint  cost,  —  fiat  prices  would  be 
absolutely  impossible.  Furthermore,  it  cannot  be  said 
that  the  Interstate  Commerce  Commission  has  satis- 
factorily solved  the  problem  of  fixing  relative  rates  on 
different  commodities.  It  has  in  fact  left  that  problem 
almost  untouched,  and  if  it  ever  does  enter  seriously 
upon  it,  the  Commission  may  find  difficulties  practically 
insuperable. 

One  could  continue  almost  indefinitely  setting  forth 
the  complexities  and  difficulties  of  government  regula- 


DIFFICULTIES   OF   REGULATION  55 

tion  of  the  prices  and  profits  of  combinations.  Most 
people  feel  that  for  the  government  actually  to  fix 
definite  prices  for  a  multitude  of  industries,  or  even  to 
limit  their  profits  specifically,  would  be  impracticable. 
Many  advocates  of  government  regulation  hope  some- 
how to  get  along  in  a  more  rough  and  ready  manner. 
They  vaguely  contemplate  a  vague  form  of  regulation. 
They  expect  the  government  to  exercise  a  general 
restraining  influence,  to  intervene  occasionally  and  to 
render  its  judgments  in  a  more  or  less  hit  and  miss 
fashion.  They  hope  that  with  the  hand  of  the  govern- 
ment resting  upon  them,  as  it  were,  in  a  general  sort  of 
way,  and  with  potential  competition  also  exercising 
some  restraining  influence,  the  combinations  for  the 
most  part  will  behave  themselves  decently.  They 
count  upon  the  alleged  superior  efficiency  of  the  trusts 
in  production  and  marketing  to  counterbalance  the 
ineffectiveness  and  incompleteness  of  regulation. 

Doubtless  we  could  get  along  after  a  fashion  with 
such  a  superficial  form  of  regulation  as  this.  It  would 
be  difficult,  however,  to  prove  that  the  public  would  be 
any  better  off  under  such  a  regime  of  half-regulated 
monopoly  than  under  a  regime  of  competition  enforced 
as  well  as  possible  by  laws  against  combinations  and 
monopolies.  Remove  once  the  fear  of  penalties  or  of 
dissolution,  and  the  combinations  would  always  be 
crowding  the  limit  of  public  tolerance.  On  the  average, 
and  in  the  long  run,  their  prices  and  charges  might  not 
be  greatly  above  a  fair  level,  but  they  would  almost 
certainly  be  somewhat  above  that  level.  Combination 
must  be  proved  decidedly  more  efficient  than  competi- 
tion before  the  people  would  be  justified  in  trusting 
trusts  under  any  but  most  rigid  government  control. 


56  THE  TRUST  PROBLEM 

The  work  of  the  Interstate  Commerce  Commission 
in  regulating  raikoads  is  often  held  up  as  demonstrating 
the  practicability  of  successful  government  regulation  of 
trusts.  It  has  already  been  shown,  however,  that  the 
regulation  of  trusts  would  be  a  much  more  complex 
task  than  the  regulation  of  railroads.  Moreover,  with 
all  due  respect  to  the  great  intelligence  and  fairness 
with  which  the  Interstate  Commerce  Commission  has 
discharged  its  duties,  we  may  yet  question  whether  the 
ability  of  the  Commission  to  regulate  the  railroads 
satisfactorily  has  been  put  to  a  final  test.  The  Com- 
mission has  thus  far  been  concerned  chiefly  with  the 
relationship  of  rates  between  different  places.  It  has 
corrected  many  abuses  in  this  respect,  tho  many  still 
remain.  As  already  stated,  it  has  done  very  little  to 
change  the  relation  between  the  rates  on  different  com- 
modities, a  relation  which  is  often  unreasonable.  The 
commission  has  never  had  to  face  the  problem  of  reduc- 
ing the  general  level  of  rates  for  all  railroads  or  for  any 
particular  railroad.  The  enormous  increase  in  the 
volume  of  traffic  during  recent  years  would  have  en- 
abled the  railroads  to  obtain  altogether  unreasonable 
profits  under  existing  rates,  had  it  not  been  for  the 
coincidence  of  a  great  advance  in  the  prices  of  commod- 
ities and  in  the  costs  of  railroad  operation.  Had  this 
not  happened,  the  Commission  would  have  been  called 
upon  to  reduce  rates  in  a  wholesale  manner  and  it  would 
have  found  that  task  immensely  complicated,  besides 
encountering  tremendous  opposition  from  the  railroads 
and  the  many  who  sympathize  with  them.  The  task 
recently  and  still  before  the  Commission,  of  determining 
whether,  or  by  how  much,  railroads  shall  be  permitted 
to  advance  rates  is  a  far  easier  task  than  that  of 
compelling  a  general  lowering  of  rates. 


DIFFICULTIES  OF   REGULATION  57 

Government  regulation  of  prices  and  profits  of  private 
concerns  always  involves  a  large  element  of  waste,  of 
duplication  of  energy  and  cost.  It  means  that  two 
sets  of  persons  are  concerning  themselves  with  the  same 
work.  The  managers  and  employees  of  the  corpora- 
tions must  study  cost  accounts  and  conditions  of  de- 
mand in  determining  price  policy.  The  officers  and 
employees  of  the  government  must  follow  and  do  it  all 
over  again.  Moreover,  the  fact  that  these  two  sets  of 
persons  have  different  motives  in  approaching  their 
work  means  friction  and  litigation,  and  these  spell 
further  expense.  To  superimpose  a  vast  governmental 
machinery  upon  the  vast  machinery  of  private  business 
is  an  extravagance  which  should  be  avoided  if  it  is 
possible  to  do  so. 

The  policy  of  government  regulation  of  industry 
may  readily  become  a  stepping  stone  to  government 
ownership  and  socialism.  The  chances  are  strong 
that  the  government  of  the  United  States  will  take  over 
the  telegraphs  and  telephones  in  the  near  future  and  the 
railroads  within  less  than  half  a  century.  The  de- 
mand for  government  ownership  of  these  as  well  as 
of  municipal  public  utilities  may  come  from  various 
sources.  If  regulation  by  the  government  proves 
ineffective  in  securing  reasonable  rates  and  charges, 
the  general  public  will  demand  government  ownership. 
If  regulation  proves  so  effective  as  to  leave  only 
moderate  returns  to  the  stockholders  of  the  corpora- 
tions, the  stockholders  are  likely  to  urge  government 
purchase,  which  would  at  least  assure  them  of  a  more 
certain  income.  In  either  case  the  excessive  cost  of 
government  regulation  will  be  urged  as  a  reason  for 
government  ownership.     In  the  same  way,  if  the  gov- 


58  THE  TRUST   PROBLEM 

ernment  undertakes  detailed  regulation  of  combinations 
in  manufacturing,  mining  and  trade,  there  is  bound  to 
be  a  strong  movement  for  government  ownership  in 
these  fields  also. 

Government  ownership  of  this  or  that  industry  is  not 
necessarily  a  bad  thing.  Even  government  ownership 
of  a  large  proportion  of  the  industries  of  the  country, 
nay,  even  complete  socialism,  need  not  necessarily 
affright  us.  To  discuss  the  merits  of  government 
ownership  would  take  us  too  far  afield.  It  is  sufficient 
merely  to  point  out  that  the  people  ought  not  to  enter 
on  the  path  of  permitting  and  regulating  combinations 
without  considering  the  advantages  and  disadvantages 
of  this,  the  possible  ultimate  outcome,  as  well  as  those 
of  the  immediate  policy  itself.  If  it  could  be  proved 
that  combination  is  materially  more  economical  than 
competition,  we  should  doubtless  be  wise  to  say  farewell 
to  competition.  Presumably  in  that  case  we  ought  to 
test  thoroly  the  practicability  of  government  regu- 
lation of  private  monopoly  before  proceeding  further. 
The  people  would  naturally  first  try  the  plan  of  govern- 
ment ownership,  if  at  all,  in  limited  fields,  and  compare 
the  results  with  those  under  regulated  monopoly  before 
undertaking  general  government  ownership.  It  is  by 
no  means  improbable  that  the  ultimate  outcome  would 
be  socialism.  The  future  is  very  likely  to  see  either  a 
regime  of  general  competition,  —  with,  of  course,  some 
special  exceptions,  —  or  a  regime  of  universal  com- 
munism. Clearly  then  we  should  be  very  sure  of  our 
ground  before  we  take  the  first  step  toward  possible 
communism.  We  should  convince  ourselves  beyond 
all  doubt  that  competition  is  impossible;  or  that,  if 
possible,    it    is    less    efficient    than    monopoly,  —  not 


DIFFICULTIES   OF   REGULATION  59 

merely  at  certain  times  and  in  certain  places,  but 
generally  and  permanently,  —  before  we  tolerate  wide- 
spread combination  in  the  field  of  business. 

We  have  not  referred  here  to  the  effects  of  regula- 
tion upon  the  trusts  themselves.  We  have  considered 
only  the  difficulties  which  the  government  would 
encounter  in  an  attempt  to  regulate  trusts.  It  is  quite 
possible  that  regulation  would  largely  destroy  that  very 
efficiency  which  is  held  up  as  the  reason  for  permitting 
them  to  exist.  The  discussion  of  this  topic,  however, 
belongs  more  properly  with  the  next  lecture,  in  which  the 
alleged  superior  efficiency  of  trusts  will  be  considered 
in  detail. 


CHAPTER   IV 

THE  ALLEGED  ADVANTAGES  OF  COMBINATION 

In  the  preceding  lecture  we  have  tried  to  show  that 
regulation  of  the  prices  and  profits  of  trusts  and  pools 
would  involve  much  difficulty.  Nevertheless,  if  it 
could  be  shown  that  combinations  controlling  a  large 
proportion  of  their  respective  industries  were  necessary 
to  secure  the  highest  economy  and  efficiency,  and 
possessed  other  economic  advantages,  the  proper  course 
would  be  to  permit  such  combinations,  while  subjecting 
them  to  regulation. 

Claims  of  this  sort  are  put  forth  with  much  vigor  ii) 
behalf  of  the  trusts.  We  are  told  by  many  that  the 
trust  is  a  natural  evolution,  that  it  is  the  last  word  in 
industrial  progress,  that  to  destroy  it  would  be  to  turn 
the  hands  of  the  clock  backward.  Let  us  restrict 
monopolistic  greed,  they  say;  let  us,  if  necessary, 
destroy  the  bad  trusts;  but  let  us  not  lose  the  advan- 
tages of  good  and  efficient  trusts.  Some  go  further  and 
descant  on  the  evils,  nay,  the  immorality,  of  competi- 
tion, the  superiority  of  peace  over  the  sword  in  industry 
as  in  international  politics.  War  is  hell;  competition 
is  war,  say  they. 

The  claim  that  the  trust  possesses  superior  efficiency 
deserves  thoro  and  fair  consideration.  The  assertion 
that  the  desire  for  greater  efficiency  was  the  primary 
motive  in  the  organization  of  the  trusts,  however,  is  not 


ALLEGED  ADVANTAGES  OF  TRUSTS        61 

in  accordance  with  the  facts.  The  trust  was  far  from 
being  a  natural  sequence  in  the  progress  of  methods  of 
production.  In  a  sense,  everything  that  happens  in 
economic  history  is  a  natural  evolution.  It  is  due  to  the 
working  of  laws.  But  in  the  sense  in  which  trust  defen- 
ders use  the  phrase,  the  trust  movement  in  the  United 
States  was  anything  but  a  natural  evolution.  It  was 
essentially  artificial.  The  basic  motive  for  the  organ- 
ization of  most  trusts  was  to  suppress  competition,  to 
maintain  or  advance  prices.  Hostile  criticism  from 
without  was  met  by  the  proclamation  of  other  motives 
and  the  prophecy  of  other  results.  Within  the  camp, 
talk  was  all  of  the  advantages  of  checking  competition. 
That  was  the  appeal  to  the  owners  of  the  concerns  which 
were  invited  to  enter  the  fold.  That  was  the  appeal  to 
the  investors  in  securities.  Indeed,  many  of  the  leaders 
in  the  trust  movement  admitted  frankly  to  the  public,  — 
before  the  Industrial  Commission  of  1899,  for  example, 
—  that  desire  to  check  so-called  destructive  competition 
was  their  original  incentive. 

A  second  important  factor  in  the  organization  of 
trusts,  particularly  during  the  most  active  period  of 
trust  formation  from  1898  to  1901,  was  the  desire  for 
profits  of  promotion  and  of  speculation.  The  promoter 
with  his  glib  tongue  and  glowing  prospectus  was  very 
much  in  evidence.  There  was  a  craze  for  combination 
among  business  men  and  investors.  Over-capitaliza- 
tion was  a  practically  universal  feature  of  the  corporate 
combinations  of  this  period.  Over-capitalization  was 
designed  in  part  to  conceal  from  the  public  the  profits 
of  operation.  Even  more,  its  purpose  was  to  help  pro- 
moters unload  properties  upon  the  investing  public  at 
high  valuations. 


62  THE  TRUST  PROBLEM 

The  fact  that  the  trust  movement  was  largely  based 
on  illegitimate  motives  and  fostered  by  artificial 
methods  does  not  demonstrate  that  trusts  are  dis- 
advantageous to  the  general  public,  but  it  should  at 
least  dim  the  halo  of  sanctity  with  which  some  seek  to 
surround  them.     It  places  them  on  the  defensive. 

The  main  argument  in  favor  of  the  trusts,  their 
supposed  superior  efficiency  and  economy,  can  scarcely 
be  advanced  in  behalf  of  the  pools.  To  affect  costs 
materially,  the  combination  must  control  fully  all  the 
operations  of  its  constituent  concerns.  This  the  pool 
does  not  attempt  to  do.  In  fact,  very  few  of  the  advo- 
cates of  trusts  attempt  to  defend  pools.  Yet  should 
the  policy  of  permitting  combinations  to  exist  be 
adopted,  it  would  be  found  difficult,  constitutionally 
and  practically,  to  draw  a  rigid  line  between  permitted 
trusts  and  prohibited  pools. 

Most  of  the  discussions  of  trust  efficiency,  whether 
based  on  statistics  and  other  facts  of  experience  or 
on  general  reasoning,  do  not  go  to  the  true  issue  and 
therefore  do  not  prove  anything.  It  has  been  assumed 
that  to  show  that  a  great  combination  of  plants  is  more 
efficient  than  a  single  plant  is  to  show  the  desirabihty  of 
trusts.  Far  from  it.  The  advocate  of  trusts  must 
prove  further  the  superiority  of  the  trust,  —  that  is,  the 
combination  sufficiently  comprehensive  to  possess  or  at 
least  to  threaten  monopolistic  power,  —  over  the  smaller 
combination  possessing  no  possible  monopolistic  power. 
He  must  show  either  that  combinations  increase  in 
efficiency  merely  with  increase  in  magnitude,  or  that 
the  elimination  of  competition  itself  is  necessar}'^  to  the 
highest  efficiency.  Very  few  propose  to  prohibit  com- 
binations altogether;  usually  it  is   only  monopolistic 


ALLEGED  ADVANTAGES   OF  TRUSTS         63 

or  potentially  monopolistic  combinations  that  are 
attacked. 

The  investigations  of  trusts  hitherto  conducted  have 
been  quite  inadequate  to  prove  whether  or  not  they  are 
the  most  efficient  organization  for  conducting  business. 
It  is  sometimes  argued,  therefore,  that  the  people 
should  defer  judgment  regarding  the  trusts  pending 
further  investigation  of  their  efficiency.  Some  go  so 
far  as  to  suggest  that  the  government  undertake  to 
determine  for  each  industry  the  exact  point  at  which  the 
size  of  combinations  reaches  the  limit  of  economy  in 
production  and  marketing.  It  is  doubtful  whether 
further  investigations  along  these  lines  would  be 
especially  instructive.  Serious  difficulties  stand  in  the 
way  of  reaching  definite  conclusions  from  them. 

Even  an  effort  to  compare  the  efficiency  of  a  trust 
regime  with  that  of  a  regime  of  strictly  separate  plants 
and  entire  absence  of  combination  holds  little  prospect 
of  success.  An  investigation  on  this  point  might  be 
undertaken  in  either  of  three  ways.  It  might  compare 
conditions  in  a  given  industry  before  and  after  the 
formation  of  the  trust.  It  might  compare  the  business  of 
the  trust  with  that  of  independent  concerns  in  the  same 
industry  at  the  same  time.  It  might  compare  trusts 
with  independent  concerns  in  other  industries.  Either 
of  these  methods  of  investigation  encounters  great 
obstacles  from  lack  of  cost  data.  So  difficult  is  it  to 
calculate  costs  accurately  that  many  concerns,  partic- 
ularly those  operating  only  a  single  plant,  have  not  yet 
undertaken  thoro-going  cost  accounting.  Very  few, 
indeed,  of  the  plants  which  entered  into  the  trusts  had 
satisfactory  cost  accounts  before  that  time  and  such 
accounts  as  did  exist  are  in  most  cases  no  longer 
accessible. 


64  THE  TRUST  PROBLEM 

But  suppose  by  following  the  first  of  the  methods  of 
inquiry  above  mentioned  it  should  be  shown  that,  after 
taking  into  account  changes  in  the  prices  of  materials 
and  in  wages,  a  trust  today  was  doing  business  more 
cheaply  than  its  predecessor  concerns  ten  or  fifteen  or 
twenty  years  ago.  Would  that  prove  the  increase  in 
efficiency  to  be  due  to  combination  ?  Efficiency  has 
advanced  also  in  industries  where  no  combinations  have 
been  organized.  This  is  the  era  of  the  cost  accountant 
and  the  efficiency  engineer.  During  recent  years 
business  men  inside  and  outside  of  combinations  have 
been  applying  themselves  to  bettering  methods  more 
assiduously  than  ever  before.  Increased  size  of  plants, 
larger  and  better  machinery,  better  methods  of  organ- 
ization are  characteristic  of  practically  every  industry. 
The  census  statistics  as  to  the  average  number  of 
employees  and  of  horse  power  per  establishment  seem 
to  indicate  that,  while  increase  in  average  size  of  plants 
is  perhaps  more  conspicuous  in  industries  where  the 
trusts  are  prominent,  there  is  no  marked  difference 
between  these  industries  and  others  in  that  respect. 

Again,  even  if  adequate  data  could  be  secured  for  an 
accurate  comparison  of  the  efficiency  of  a  trust  with  that 
of  its  present  single-plant  competitors,  this  would  not 
prove  the  advantage  of  a  trust  regime  over  a  regime  of 
separate  plants.  The  inefficiency  of  the  independent 
concerns  may  be  due  to  the  presence  of  the  trust.  The 
combination  at  its  inception  may  have  taken  in  all 
the  larger  and  more  efficient  plants  then  existing.  The 
fear  of  the  trust,  and  the  actual  effect  of  its  competition, 
fair  or  unfair,  may  have  prevented  the  development  of 
large  competing  concerns  thereafter.  The  Standard 
Oil  Company  did  produce  more  economically  than  its 


ALLEGED  ADVANTAGES  OF  TRUSTS        65 

competitors.  But  who  that  is  familiar  with  the  out- 
rageous tactics  of  the  Standard  toward  competitors  can 
attribute  that  fact  wholly  to  the  superiority  of  combina- 
tion over  competition  ?  Had  no  trust  been  formed  in 
the  oil  industry  there  would  certainly  have  developed 
by  this  time  a  number  of  large  separate  concerns,  each 
with  a  considerable  degree  of  integration,  and  with 
efficiency  at  least  not  greatly  inferior  to  that  of  the 
Standard  Oil  Company. 

In  a  few  industries,  —  the  steel  industry,  for  example, 
—  there  are  today  comparatively  large  single-plant 
concerns  standing  side  by  side  with  combinations. 
Comparisons  between  them  and  the  combinations  with 
respect  to  efficiency  would  be  fair.  It  is  unfortunate 
that  the  Bureau  of  Corporations,  in  its  desire  to  protect 
the  privacy  of  business,  was  unable  to  present  the  infor- 
mation which  it  possessed  about  the  steel  industry  in 
such  a  way  as  to  permit  comparisons  of  this  character. 
In  can  only  be  said  that  its  report  discloses  wide  varia- 
tions in  cost  of  production  among  the  individual  plants 
of  the  Steel  Corporation  itself.  It  is  more  than  probable 
that  some  of  the  independent  concerns  are  superior  in 
efficiency  to  the  less  efficient  plants  of  the  Steel  Corpora- 
tion, and  quite  likely  that  they  compare  favorably  even 
with  the  most  efficient  of  those  plants.  Such  concerns 
as  Jones  &  Laughlin,  the  Lackawanna  Steel  Company, 
and  the  Cambria  Steel  Company  are  not  weaklings. 
They  have  many  millions  of  capital  and  a  great  output. 
They  practise  integration  of  related  stages  of  produc- 
tion to  a  large  extent.  Their  plants  are  largely  new  and 
up  to  date.  The  Lackawanna  Steel  Company  at  Buffalo 
preceded  the  Steel  Corporation  in  the  extensive  use  of 
the  by-product   coke  oven,   one  of   the  most  impor- 


66  THE  TRUST  PROBLEM 

tant  of  the  modern  forms  of  economy  in  the  steel 
industry.  Blast  furnaces  of  Jones  &  Laughlin  are 
among  the  record-holders  for  size  and  efficiency. 

Finally,  it  is  obviously  very  difficult  to  judge  of  the 
advantages  of  combination  in  production  and  market- 
ing by  comparing  the  business  of  combinations  with 
that  of  single  plants  in  other  industries.  The  differences 
in  the  subject  matter  of  production  and  in  the  conditions 
would  in  most  cases  render  such  comparisons  of  little 
value. 

In  view  of  these  difficulties,  it  is  certain  that  detailed 
investigations  regarding  the  relative  efficiency  of  trusts 
and  single  plants,  even  if  they  covered  the  entire  field 
of  industry,  would  result  only  in  disagreement  among 
the  people  as  to  the  conclusions  to  be  drawn.  It  would 
probably  be  proved  clearly  enough  that  certain  partic- 
ular trusts  were  highly  efficient.  We  might  convince 
ourselves,  not  only  that  they  were  more  efficient  than 
the  best  of  the  predecessor  concerns,  or  than  the  best 
of  the  present  competing  concerns,  but  also  that  they 
were  more  efficient  even  than  such  individual  plants 
as  might  have  come  into  existence  in  the  absence  of 
combination.  In  other  industries,  however,  no  such 
demonstration  would  be  possible.  The  investigations 
would  still  leave  doubt  as  to  whether  the  trust  in  general 
was  superior  in  efficiency  to  the  separate  plant. 

But  suppose,  for  purposes  of  argument,  it  should  be 
demonstrated  that  in  general  the  trust  was  more  efficient 
than  the  individual  plant.  We  should  still  have  failed 
to  show  the  superiority  of  the  trust  over  the  less  exten- 
sive combination  having  no  possibility  of  monopolistic 
power.  That  question  could  scarcely  be  attacked  at  all 
by  statistical  investigation  of  present  or  past  conditions. 


ALLEGED  ADVANTAGES  OF  TRUSTS         67 

The  basis  for  comparisons  does  not  exist.  In  very  few 
industries  did  combination  on  a  limited  scale  precede 
monopolistic  combination  on  a  large  scale.  In  still 
fewer  industries  have  there  existed,  side  by  side,  a 
combination  controlling  the  greater  part  of  the  business 
and  another  combination  or  combinations  having  only  a 
minor  fraction  of  the  business.  Comparison  between 
the  trust  in  one  industry  and  the  smaller  combination 
in  another  industry  would  usually  lead  to  no  definite 
conclusions. 

The  fact  is  that  we  have  had  comparatively  little 
experience  with  combinations  other  than  trusts  and 
pools  of  a  more  or  less  monopolistic  character.  If  the 
desire  to  secure  increased  efficiency  had  been  the  only 
motive  of  business  men  in  forming  combinations,  we 
might  have  witnessed  a  large  number  of  combinations 
having  no  controlling  proportion  of  the  business  in  their 
respective  fields.  But  since  the  main  object  was  to 
suppress  competition,  combinations  of  a  more  compre- 
hensive character  sprang  at  once  out  of  the  regime  of 
separate  plants. 

There  is  no  objection  to  further  investigation  regard- 
ing trust  efficiency,  provided  it  is  not  made  an  excuse 
for  deferring  action  as  to  the  dissolution  of  trusts.  A 
wide-reaching  investigation  of  trust  efficiency  would 
require  not  less  than  ten  years.  Every  year  that  trusts 
are  permitted  to  continue  renders  it  more  difficult  to 
restore  competition  among  their  constituent  concerns. 
The  officers  and  managers  year  by  year  become  more 
accustomed  to  working  together;  the  organization  year 
by  year  becomes  more  welded  into  an  inseparable  unit. 
The  shock  to  business  from  breaking  up  combinations 
also  will  become  more  severe  the  longer  it  is  deferred. 


68  THE  TRUST  PROBLEM 

Since  there  are  thus  no  adequate  existing  data  on 
which  to  base  conclusions  as  to  the  advantages  of  trusts 
from  the  standpoint  of  efficiency,  we  are  forced  to  fall 
back  upon  general  reasoning.  The  theoretical  advan- 
tages claimed  for  the  trusts  by  their  defenders  naturally 
fall  into  three  groups,  —  those  attributable  to  mere 
magnitude,  those  attributable  to  combination  of  sepa- 
rate plants,  and  those  attributable  to  the  elimination 
of  competition.  The  failure  to  make  this  obvious 
classification  is  the  source  of  much  fallacious  thinking. 
Only  advantages  of  the  third  class  can  properly  be  put 
forward  as  directly  proving  the  desirability  of  trusts 
that  possess  a  controlling  proportion  of  the  industry  in 
which  they  are  engaged. 

The  following  are  some  of  the  advantages  claimed  for 
trusts  which,  so  far  as  they  exist  at  all,  exist  solely  by 
reason  of  the  magnitude  of  their  business. 

1.  Command  of  the  largest  and  most  efficient  units 
of  production,  —  buildings,  power  plants  and  machinery. 

2.  Command  of  large  liquid  capital  and  credit,  enab- 
ling the  concern  to  meet  emergencies  and  to  take  advan- 
tage of  special  opportunities. 

3.  Command  of  superior  administrative  and  technical 
ability. 

4.  Economy  in  the  purchase  of  raw  material  and 
supplies  in  large  quantities. 

5.  Distribution  of  administrative  and  other  overhead 
expenses  and  of  selling  and  advertising  expenses  over  a 
large  output,  thus  reducing  unit  costs. 

6.  Practicability  of  introducing  efficient  accounting 
systems  too  expensive  for  smaller  concerns. 

Any  concern,  if  sufficiently  large,  can  possess  all  such 
advantages.       Magnitude    of   operation    is   purely    a 


ALLEGED  ADVANTAGES  OF  TRUSTS         69 

relative  term.  In  minor  industries,  only  a  concern 
which  has  the  greater  part  of  the  entire  business  can  be 
considered  large.  In  great  industries  the  concern 
which  has  only  a  small  fraction  of  the  buspess  may 
possess  millions  of  capital,  a  vast  plant  and  an  army  of 
employees.  No  one  would  think  of  denying  that  large 
scale  operation  has  advantages  over  small  scale  opera- 
tion. It  does  not  follow  that  an  industrial  combination 
controlling  the  major  part  of  a  business  will,S3y  reason 
of  size  alone,  be  more  efficient  than  a  less  extensive 
combination  or  even  than  a  single  large  plant.  Effi- 
ciency does  not  increase  proportionately  with  size.  It 
has  been  learned  by  the  experience  of  business  men  that 
when  the  individual  plant  passes  beyond  a  certain  size, 
it  ceases  to  gain  in  efficiency.  The  same  causes  which 
make  this  true  of  the  individual  plant  apply  to  the  com- 
bination of  plants  as  well.  There  may  be  advantages 
from  combination  as  such  or  from  monopoly  as  such, 
but  the  advantages  of  mere  magnitude  have  their 
limits.  Moreover,  when  size  passes  beyond  a  certain 
point,  it  may  even  lessen  efficiency.  The  unwieldiness 
of  a  vast  organization,  the  difficulty  of  securing  coopera- 
tion among  its  parts,  the  impossibiUty  of  personal 
oversight  by  the  master  mind,  —  these  are  disadvantages 
of  excessive  magnitude. 

There  may  be  some  industries  in  which,  from  the 
standpoint  of  magnitude  alone,  the  greatest  efficiency 
would  lie  in  a  concern  controlling  virtually  the  entire 
business.  There  is  little  ground  for  believing  that  this 
is  the  case  in  the  great  majority  of  industries.  At  any 
rate  it  is  utterly  impossible,  by  general  reasoning  or  by 
statistical  investigation,  to  prove  that  it  is  so.  Indeed, 
it  would  seem  that  in  most  industries  a  concern  having 


70  THE  TRUST  PROBLEM 

even  as  much  as  half  of  the  total  business  would,  in 
respect  to  those  elements  of  efficiency  now  under  con- 
sideration, have  no  superiority  over  a  somewhat  smaller 
concern. 

Another  set  of  advantages  claimed  for  trusts  rests  upon 
the  fact  of  combination  as  such.  These  supposed  advan- 
tages result  from  the  assemblage  of  separate  plants  under 
a  single  control.  They  are  not  dependent  on  the  elimina- 
tion of  competition.     Among  these  are  the  following: 

1.  Use  in  all  plants  of  the  best  methods  and  devices 
discovered  in  any  one  plant,  comparative  cost  account- 
ing rendering  it  possible  to  determine  which  are,  in  fact, 
the  best. 

2.  Rivalry  between  the  managers  of  different  plants, 
stimulated  by  comparative  cost  accounts  and  other 
comparative  data. 

3.  Saving  in  cross  freights  by  shipping  from  the  plant 
nearest  to  the  desired  destination. 

4.  Integration  of  industry  —  that  is,  the  conduct  of 
successive  or  related  processes  under  a  single  manage- 
ment. 

Combination  undoubtedly  does  have  its  advantages. 
But  combination,  like  magnitude,  is  a  relative  matter. 
In  a  minor  industry  a  combination  of  even  a  few  plants 
may  mean  the  bringing  together  of  the  larger  proportion 
of  the  business.  In  another  industry  a  combination 
including  a  considerable  number  of  plants  may  have  but 
a  fraction  of  the  total  business.  Any  combination  of 
plants,  however  few,  can  obtain  the  advantages  specified 
in  some  degree.  Just  as  economies  of  magnitude  do  not 
increase  proportionately  with  magnitude,  so  economies 
of  combination  do  not  increase  proportionally  with  the 
number  of  plants  combined.     There  is  a  limit  beyond 


ALLEGED  ADVANTAGES  OF  TRUSTS         71 

which  the  addition  of  plants  brings  no  further  economy. 
Just  where  the  limit  is  can  be  proved  neither  by  abstract 
reasoning  nor  by  statistical  investigation.  It  is  dif- 
ferent in  different  industries.  There  is  little  reason  to 
believe  that  in  most  industries  a  combination  controlling 
the  entire  business  would  be  appreciably  superior,  with 
respect  to  the  elements  of  efficiency  above  mentioned, 
to  a  combination  having  a  minor  fraction  of  the  business. 

Take,  for  example,  the  matter  of  cross  freights.  In 
some  industries  freights  are  not  an  important  element 
of  expense.  In  others  the  location  of  materials,  or  of 
consuming  markets,  or  like  conditions,  make  it  impos- 
sible to  locate  plants  with  a  view  to  saving  freight  either 
on  materials  or  products.  There  are,  however,  a  good 
many  industries  in  which  scattered  plants  competing 
with  one  another  incur  much  needless  expense  in  trans- 
portation. In  such  industries  a  combination  by  ship- 
ping from  the  nearest  plant  could  effect  material  savings. 
It  does  not  follow  that  a  combination  of  all  the  plants 
in  the  country  could  save  more  than  a  combination  of  a 
moderate  number  of  well  distributed  plants. 

Where  an  industry  derives  peculiar  advantages  from 
the  integration  of  successive  and  related  processes, 
combination  on  a  large  scale  may  be  essential  to  the 
full  realization  of  economies  of  this  character.  If  in  a 
single  one  of  the  related  branches  of  business  the  greatest 
efficiency  requires  the  handling  of  a  large  part  of  the 
total  business  by  a  single  organization,  than  it  may 
be  advantageous  for  the  combination  to  conduct  other 
branches  of  the  business  on  a  corresponding  scale. 
There  are,  however,  few,  if  any,  important  industries  in 
which  successful  integration  requires  the  control  of  the 
major  part  of  the  business  by  a  single  combination.     In 


72  THE  TRUST  PROBLEM 

a  good  many  instances  a  concern  that  has  not  more 
than  a  single  plant  engaged  in  each  of  the  different 
stages  of  production  has  been  able  to  secure  an  effi- 
ciency at  least  closely  comparable  with  that  of  a  wide- 
reaching  combination.  This  is  the  case,  for  example, 
with  several  independent  concerns  in  the  steel  industry 
and  even  with  some  of  the  recently  developed  inde- 
pendent concerns  in  the  oil  industry. 

There  is  another  economy  sometimes  claimed  for  the 
combination  of  separate  plants,  namely,  that  it  is  able 
to  close  down  the  inefficient  plants  and  concentrate 
business  in  the  largest  and  most  modern.  This,  how- 
ever, is  not  an  advantage  to  the  public.  No  combina- 
tion, unless  with  monopolistic  intent,  would  take  in 
inefficient  plants.  The  fact  that  a  good  many  trusts 
have,  shortly  after  their  organization,  dismantled 
numerous  plants  is  proof  simply  of  their  monopolistic 
purpose.  Under  a  regime  of  competition  the  inefficient 
plant  will  in  due  time  be  forced  out  of  business  and  the 
public  will  no  longer  be  burdened  with  supporting  it. 
When  a  combination  takes  in  an  inefficient  plant  and 
dismantles  it,  the  public  pays  the  bill,  provided  the 
combination  succeeds  in  obtaining  a  sufficient  degree  of 
monopoly  power.  The  combination  either  charges 
prices  high  enough  to  enable  it  to  write  off  the  cost  of 
such  a  plant  out  of  its  profits,  or  that  cost  is  perma- 
nently represented  by  securities  on  which  dividends  are 
expected  to  be  paid.  A  combination  which  takes  in  a 
limited  number  of  selected,  efficient  plants  is  in  this 
respect  far  more  conducive  to  economy  than  a  monopo- 
listic combination. 

It  thus  appears  probable  that  most  of  the  economies 
claimed  for  the  trusts  could,  in  many  if  not  all  indus- 


ALLEGED  ADVANTAGES  OF  TRUSTS         73 

tries,  be  secured  in  approximately  equal  measure 
without  permitting  combinations  sufficiently  compre- 
hensive to  possess  any  approach  to  monopoly  power. 
There  remain  those  alleged  economies  of  trusts  which 
arise  not  from  mere  magnitude  or  from  mere  assembling 
of  separate  plants,  but  from  the  elimination  of  competi- 
tion. These  require  more  thoro  consideration.  They 
are  few,  namely: 

1.  Prevention  of  needless  duplication  of  plants. 

2.  Elimination  of  that  part  of  the  cost  of  selling  goods 
which  results  from  the  effort  to  secure  business  at  the 
expense  of  competitors. 

3.  Elimination  of  waste  due  to  irregularity  of  opera- 
tion, and  of  the  losses  of  so-called  destructive  competi- 
tion. 

Let  us  take  these  up  in  order: 

L  It  is  contended  that  competition  leads  to  excessive 
investment  of  capital,  to  the  erection  of  plants  with  a 
capacity  in  excess  of  the  needs  of  the  country.  This 
is  true  only  in  a  very  limited  degree  of  ordinary  mining, 
manufacturing,  and  commercial  business.  Such  busi- 
ness differs  radically  from  the  so-called  industries  of 
increasing  returns,  such  as  transportation.  In  order 
that  there  shall  be  any  rail  transportation  between  two 
points,  it  is  necessary  to  build  a  track  which  may  have 
more  than  capacity  enough  for  all  the  traffic.  Under 
such  conditions,  the  one  railroad  can  increase  its  busi- 
ness without  corresponding  new  investment.  In  fact, 
up  to  a  certain  limit,  even  the  operating  expenses  of  a 
railroad  do  not  increase  proportionately  with  volume 
of  business.  The  building  of  a  second  railroad  under 
the  conditions  mentioned  would  mean  unnecessary 
duplication  of  capital  and  perhaps  also  of  the  operating 
expenses. 


74  THE  TRUST  PROBLEM 

In  the  case  of  the  ordinary  manufacturing  industries 
it  seldom  happens  that  a  single  plant,  however  large, 
can  supply  the  entire  demand  of  the  territory  to  which 
it  has  natural  access.  The  construction  of  a  second 
plant  usually  does  not  mean  needless  duplication  of 
investment.  The  aggregate  capacity  of  all  plants  is 
not  likely  to  exceed  materially  the  demand  in  times  of 
prosperity.  The  desire  of  each  competitor  to  be  ready 
to  get  as  large  a  share  of  the  trade  as  possible  may  lead 
to  some  excess  in  plant  capacity,  but  not  to  a  great 
excess.  Moreover,  in  manufacturing  industries,  even 
if  there  be  some  excess  of  plant  capacity,  operating 
expenses  are  not  likely  to  be  materially  augmented. 
The  plant  working  at  less  than  full  capacity  can  lessen 
its  force  more  or  less  proportionately.  Operating 
expenses  vary  fairly  closely  with  output. 

It  must  not  be  forgotten  that  the  great  majority  of 
the  industries  of  the  country  are  steadily  and  rapidly 
growing.  In  industries  where  trusts  are  powerful,  as 
well  as  in  other  industries,  additional  plant  capacity  is 
constantly  being  constructed,  and  additional  working 
force  taken  on.  Even  if  it  were  not  for  the  growth  of 
demand,  the  improvements  in  methods  of  production 
would  necessitate  the  construction  of  new  plants.  The 
older  and  less  efficient  plants  in  a  manufacturing  indus- 
try ought  not  to  be  taken  into  account  in  judging  the 
relation  of  plant  capacity  to  demand. 

The  reasoning  as  to  duplication  of  plant  capacity 
which  applies  to  manufacturing  industries  applies  as 
well  to  mining  and  to  mercantile  business.  There  are 
a  few  manufacturing  industries  in  which  it  is  customary 
for  the  manufacturer  to  conduct  also  some  special  form 
of  transportation.      Ecomony  in  such  transportation 


ALLEGED  ADVANTAGES   OF  TRUSTS         75 

may  demand  that  duplication  of  plant  be  avoided,  — 
that  there  be  monopolistic  operation.  If  the  transporta- 
tion business  cannot  be  divorced  from  the  manufacture, 
or  subjected  to  separate  regulation,  monopolistic  opera- 
tion of  the  manufacturing  business  as  well  may  be 
unavoidable  or  at  least  advantageous.  For  example, 
the  Standard  Oil  Company  and  other  leading  refiners  of 
petroleum  operate  pipe-lines  for  transporting  crude  oil 
and  also  tank  cars  and  tank  wagons  for  delivering 
refined  products.  Needless  duplication  of  plant  and 
of  operating  expenses  may  be  involved  in  competition 
in  these  two  branches  of  the  oil  industry.  Unless  they 
can  be  divorced  from  the  refining  business  proper,  it 
may  prove  necessary  to  tolerate  monopoly  in  petroleum 
refining.  It  has  been  proposed  to  require  the  owners 
of  pipe-lines,  be  they  refiners  or  others,  to  transport  oil 
as  common  carriers  at  reasonable  charges  to  be  fixed 
by  the  government.  There  are  serious  technical  diffi- 
culties in  the  way,  but  it  is  probable  that  they  could  be 
overcome  by  special  methods  of  government  regulation. 
Whether  it  would  be  possible  to  manage  the  tank- 
wagon  delivery  business  in  a  similar  way  is  more  doubt- 
ful. Were  it  not  for  the  extraordinary  difficulty  of 
regulating  the  prices  of  refined  petroleum  products, 
arising  from  the  fact  of  joint  cost,  a  simpler  way  of 
avoiding  the  evils  of  monopoly  in  the  oil  industry  might 
be  through  such  regulation  of  prices.  Regulation  of 
profits  may  be  the  most  feasible  plan  of  meeting  the 
situation. 

The  Steel  Corporation  is  also  engaged  in  transporta- 
tion. It  operates  railroads  which  to  a  large  extent  are 
patronized  by  its  competitors,  and  it  operates  steam- 
ships.    To  requu'e  the  Steel  Corporation  to  divest  itself 


76  THE  TRUST  PROBLEM 

of  its  railroads,  —  at  least  the  more  important  lines 
which  competitors  may  have  occasion  to  use,  —  would 
not  materially  lessen  the  efficiency  of  the  integration 
secured  by  that  corporation.  Nor  would  there  be  any 
serious  difficulty  in  effectively  regulating  the  charges 
of  such  railroads  if  left  in  the  control  of  the  Steel 
Corporation.  At  any  rate,  the  element  of  transporta- 
tion in  the  steel  industry  is  not  a  factor  necessitating 
or  justifying  a  combination  of  steel  manufacturing 
plants  of  sufficient  size  to  possess  any  approach  to 
monopoly  power. 

2.  It  is  contended  further  that  competition  means 
large  waste  in  selling  expenses,  due  to  the  endeavor  of 
business  concerns  to  wrest  trade  from  one  another 
through  solicitation  and  advertising.  This  is  doubtless 
true  in  some  industries,  but  it  is  by  no  means  equally 
true  in  all.  Where  the  products  of  an  industry  are 
standard  in  character,  are  in  steady  demand,  and  are 
marketed  through  large  middlemen  or  to  large  individ- 
ual consumers,  even  the  most  vigorous  competition  in 
pushing  the  sale  of  goods  involves  no  very  great  expense. 
In  the  case  of  certain  other  industries,  heavy  selling 
and  advertising  expenses  are  considered  necessary  by 
business  men  merely  for  the  purpose  of  stimulating 
demand  and  regardless  of  competition.  Concerns 
which  have  virtually  a  monopoly  often  spend  great  sums 
in  advertising  their  wares.  However,  it  must  be  ad- 
mitted that  in  a  good  many  industries  competition  in 
selling  does  mean  some  economic  waste.  The  advan- 
tage of  eliminating  such  waste  can  properly  be  set 
against  the  disadvantages  of  monopolistic  control. 

However,  needless  expense  in  selling  goods  is  likely 
sooner  or  later  to  be  reduced  by  informal  understandings 


ALLEGED  ADVANTAGES  OF  TRUSTS         77 

not  amounting  to  monopolistic  agreements.  As  the 
competing  concerns  become  larger  and  more  efficient  in 
production,  their  managers  are  likely  to  see  the  absurdity 
of  trying  to  get  all  the  trade  away  from  one  another. 

3.  Finally,  it  is  contended  that  uncontrolled  competi- 
tion results  in  irregularity  of  consumption  and  conse- 
quently in  irregularity  of  the  operation  of  plants,  which 
tends  to  increase  costs  as  well  as  to  injure  the  working 
classes  and  to  disturb  business  generally.  The  most 
common  illustration  used  to  support  this  contention  is 
that  of  the  steel  industry.  It  is  urged  that  when  by 
reason  of  active  competition,  prices  are  particularly 
low,  the  consumers  of  iron  and  steel  and  their  cruder 
products  buy  excessive  quantities  and  so  discount  their 
future  needs  as  subsequently  to  result  in  very  light 
demand.  The  plants  in  the  industry,  after  being 
worked  to  their  utmost  capacity,  may  have  to  drop  a 
large  part  of  their  force  or  even  close  altogether.  Such 
irregularity  in  production  is  uneconomical.  It  has 
been  maintained  that  the  greater  steadiness  of  prices 
since  the  organization  of  the  United  States  Steel  Cor- 
poration not  only  has  tended  to  cheapen  production 
but  has  been  beneficial  to  consumers  and  to  business 
generally. 

It  may  well  be  questioned  whether  competition  is  as 
important  a  factor  in  causing  irregularity  of  consump- 
tion of  steel  products  as  is  sometimes  supposed.  The 
consumption  of  many  of  the  more  important  products 
of  iron  and  steel  is  necessarily  variable.  Those  prod- 
ucts are  used  primarily  in  the  creation  of  new  capital 
goods.  The  desire  of  men  to  invest  in  new  capital 
goods  varies  greatly  with  the  general  conditions  of 
prosperity  or  depression  in  business.      The  policy  of 


78  THE  TRUST  PROBLEM 

the  Steel  Corporation  in  recent  years  has  had  less  to  do 
with  the  steadiness  of  demand  for  steel  than  the  rela- 
tively continuous  prosperity  of  the  country.  This  is 
evidenced  by  the  demoralization  of  prices  during  the 
last  year  or  so. 

If  it  were  possible  for  trusts,  when  subjected  to  strict 
regulation  by  the  government,  to  adjust  supply  accu- 
rately to  demand,  and  to  cause  demand  itself  to  be 
more  steady,  that  fact  would  constitute  an  argument 
of  considerable  force  in  behalf  of  the  policy  of  permitting 
trusts  to  exist  subject  to  regulation.  As  already  sug- 
gested, however,  the  task  of  the  government  in  regulat- 
ing prices  for  an  industry  subject  to  variable  demand 
would  be  extraordinarily  difficult.  The  efforts  at  doing 
so  would  probably  prove  far  from  successful  in  bringing 
about  steadiness  of  production. 

The  argument  with  regard  to  the  effect  of  competition 
in  causing  irregularity  of  consumption  and  of  production 
is  often  extended  further.  It  is  urged  that  competition 
in  modern  industry  tends  to  become  so  fierce  as  to 
destroy  capital.  So-called  destructive  competition,  it 
is  claimed,  may  bring  even  the  most  efficient  concerns 
to  bankruptcy.  Such  a  result  not  only  injures  inves- 
tors, but  at  least  sometimes  means  actual  waste  of 
capital,  and  therefore,  in  the  long  run,  injures  consumers 
as  well.  Indeed,  some  believe  that  pools,  tho  possess- 
ing few  advantages  with  respect  to  efficiency  of  produc- 
tion in  other  respects,  are  justifiable  as  means  of 
preventing  the  losses  of  destructive  competition. 

The  subject  of  destructive  competition  has  been 
discussed  in  the  second  chapter  with  reference  to  its 
influence  in  driving  concerns  into  combination.  It  was 
there  shown  that,  in  the  great  majority  of  manufactur- 


ALLEGED  ADVANTAGES  OF  TRUSTS         79 

ing  industries,  competition  is  not  likely  to  become  as 
fierce  as  in  transportation  industries.  The  principle 
of  increasing  returns,  which  tends  peculiarly  to  cause 
bitter  competition,  has  comparatively  little  application 
in  manufactures.  The  concern  which  finds  current 
business  unprofitable  usually  restricts  its  output  or 
stops  it  altogether,  looking  to  the  time  when  the  in- 
crease of  demand  will  again  render  the  business  of  the 
plant  profitable.  It  does  not  go  on  cutting  prices  until 
forced  into  bankruptcy. 

Against  these  alleged  advantages  of  monopolistic 
combination  must  be  set  the  tendency  of  monopoly  to 
lessen  efficiency  and  retard  industrial  progress.  It  is 
generally  recognized  that  the  possession  of  a  monopoly 
tends  strongly  toward  stagnation.  Competition  is  a 
powerful  spur  to  efficiency.  The  competitor  who  would 
not  go  to  the  wall  must  be  ever  on  the  alert.  Inventions 
of  machinery  and  improvements  in  methods  are  essential 
to  successful  competition.  Marked  as  has  been  the 
progress  in  the  railroad  business  of  the  United  States, 
there  is  much  reason  to  believe  that  American  railroads 
have  made  less  progress  during  the  last  decade  or  two 
than  most  American  manufacturing  industries,  and  that 
this  is  due  to  the  comparative  absence  of  competition 
in  the  railroad  business  during  recent  years.  The 
relative  unprogressiveness  of  the  largely  monopolized 
telegraph  business  in  this  country,  at  least  till  recently, 
has  often  been  commented  on. 

It  can  scarcely  be  proved  that  any  of  the  leading 
trusts  have  been  particularly  lacking  in  progressiveness, 
that  they  have  actually  made  fewer  improvements  in 
methods   than  have   been  made  in  industries  where 


80  THE  TRUST  PROBLEM 

competition  was  active.  Comparisons  on  this  point  are 
virtually  impossible.  But  the  trusts  have  thus  far  been 
on  the  defensive  both  against  potential  competition  and 
against  public  criticism.  This  defensive  position  has 
made  them  look  closely  to  efficiency.  Should  the  policy 
of  permitting  monopolistic  combinations  be  adopted, 
there  would  be  danger  that  the  absence  of  competitive 
pressure  would  more  than  counterbalance  any  possible 
advantages  from  the  elimination  of  competition. 

Regulated  monopoly  is  likely  to  be  even  less  efficient 
than  unregulated  monopoly.  The  trust,  if  unrestricted 
in  prices  and  profits,  has  at  least  a  motive  to  do  business 
as  cheaply  as  possible.  When,  however,  the  trust 
anticipates  that  every  reduction  in  costs  may  mean  a 
reduction  in  prices,  that  profits  resulting  from  increased 
efficiency  may  be  wholly  or  largely  taken  from  it  by 
government  regulation,  even  this  motive  tends  to  dis- 
appear. In  the  case  of  public  service  corporations 
various  methods  have  been  pursued,  with  more  or  less 
success,  for  securing  a  division  of  the  advantages  of 
increased  efficiency  between  the  public  and  the  monop- 
oly. Should  the  government  enter  upon  the  policy 
of  regulating  the  prices  and  the  profits  of  trusts,  similar 
methods  would  have  to  be  followed  as  far  as  possible. 
Because  of  the  multifarious  character  of  the  different 
industries,  however,  it  would  be  much  harder  to  apply 
these  methods  successfully  to  trusts  than  to  the  limited 
number  of  public  service  enterprises. 

Let  us  now  bring  together  summarily  the  results  of 
this  discussion  of  the  trust  problem.  We  have  tried  to 
show  that  unregulated  combination  is  dangerous  to  the 
public  welfare.     Even  if  they  could  be  deprived  of  the 


ALLEGED  ADVANTAGES  OF  TRUSTS         81 

weapons  of  unfair  competition  or  of  the  advantages  of 
natural  monopoly,  —  a  thing  by  no  means  easy,  —  trusts 
and  pools  would  still  probably  possess  a  material  degree 
of  monopolistic  power.  It  would  be  a  dangerous  experi- 
ment to  remove  the  ban  of  the  law  from  them  without 
substituting  effective  machinery  for  regulation. 

We  have  sought  to  show  further  that  it  is  feasible  to 
prevent  by  law  the  more  formal  types  of  combinations 
and  of  contracts  in  restraint  of  trade.  It  may  be 
impossible  wholly  to  prevent  informal  understandings 
which  in  some  degree  restrict  competition.  These 
informal  understandings,  however,  are  far  less  effective 
in  maintaining  monopoly  prices  and  charges  than  formal 
combinations  such  as  pools  and  trusts. 

It  was  pointed  out  that  the  difficulties  of  govern- 
ment regulation  are  exceedingly  great.  The  policy  of 
permitting  trusts  to  exist  might  result  in  the  extension 
of  trusts  over  almost  the  entire  field  of  industry.  It 
might  also  result  in  practically  complete  monopoliza- 
tion by  each  trust  of  its  particular  field.  The  deter- 
mination of  costs  and  of  investment  as  a  basis  for  the 
fixing  of  prices  and  profits  over  the  multifarious  field  of 
industry  would  require  immensely  elaborate  investiga- 
tions and  would  involve  extraordinarily  difficult  ques- 
tions of  judgment.  Proper  adjustment  to  the  ever 
varying  conditions  of  demand  would  be  almost  impos- 
sible. A  vast  governmental  machinery  for  fixing  prices 
and  profits  would  have  to  be  superimposed  upon  the 
machinery  of  private  business.  Government  ownership 
on  a  vast  scale  or  even  complete  socialism  might  readily 
be  the  outcome  of  this  policy. 

Finally,  it  has  been  shown  that  most  of  the  alleged 
advantages  of  trusts  in  efficiency  could  probably  be 


82  THE  TRUST  PROBLEM 

secured  in  quite  as  great  measure  through  large  individ- 
ual plants  and  through  smaller  combinations  not 
powerful  enough  to  threaten  monopoly.  While  the 
suppression  of  competition  itself  may  tend  to  bring 
about  certain  economies  and  other  advantages,  the 
importance  of  these  is  usually  over-estimated,  and  there 
must  be  set  against  them  not  only  the  grave  difficulties 
of  regulation,  but  the  tendency  of  monopoly  and  of 
regulation  itself  to  lessen  efficiency. 

It  may  be  granted  that  the  data  and  the  reasoning 
throughout  this  discussion  have  been  not  altogether 
conclusive.  It  cannot  be  expected  that  every  one  will 
agree  with  the  points  of  view  here  taken.  The  burden  of 
proof,  however,  rests  upon  the  defenders  of  the  trusts. 
They  ask  us  to  permit  the  trusts  to  exist,  whether  with 
or  without  regulation.  In  this  they  are  asking  a  depart- 
ure from  what  until  very  recently  were  universally 
considered  the  proper  principles  of  law  and  of  economics. 
Their  argument  is  certainly  no  more  conclusive  than 
the  argument  of  those  who  would  suppress  trusts. 

To  defend  big  business  is  easy.  The  advantages  of 
large  scale  production  are  obvious.  To  identify  big 
business  and  large  scale  production  with  the  trust  is 
quite  another  thing.  The  glamor  of  the  huge  corporation 
with  its  mighty  plants,  its  splendid  organization,  its  thoro 
accounting  system,  its  integration  of  related  processes, 
must  not  blind  us.  All  these  are  essential  to  prog- 
ress. To  get  them  we  might  even  be  willing  to  pay 
the  high  price  of  surrendering  competition.  But  we 
must  be  sure  that  they  can  be  secured  at  no  lower  price 
before  we  tender  such  a  compensation,  or  before  we  even 
enter  on  a  path  which  may  ultimately  necessitate  that 
compensation. 


ALLEGED  ADVANTAGES  OF  TRUSTS         83 

To  pass  from  a  regime  of  competition  to  one  of  monop- 
oly is  easy.  To  return  from  a  regime  of  monopoly  to 
one  of  competition  is  immensely  difficult.  The  Ameri- 
can people  have  not  yet  tried  out  fully  the  possibilities 
of  competitive  industry.  It  would  be  foolish  to  aban- 
don the  experiment  thus  early  in  our  national  develop- 
ment. If  we  destroy  as  far  as  possible  the  trusts  that 
now  exist,  if  we  prevent  trusts  and  combinations  from 
being  formed,  we  shall  soon  see  whether  it  is  possible 
to  secure  real  competition,  and  whether  under  competi- 
tion efficiency  can  reach  a  high  point.  If  not  we  can 
readily  enough  change  our  policy.  On  the  other  hand, 
to  accept  the  trusts  today  is  to  leap  in  the  dark.  Every 
step  in  that  direction  is  difficult  to  retrace.  The  results 
of  an  experiment  with  permitting  trusts  freely  to 
organize  and  with  regulating  them  could  not  be  deter- 
mined for  such  a  long  period  of  time  that  the  trusts 
would  meantime  get  a  grip  almost  impossible  to  shake 
off.  In  fact,  we  never  could  satisfy  ourselves  by  such 
an  experiment  that  a  trust  regime  was  more  satisfactory 
than  a  regime  of  competition,  for  we  should  have  no  fair 
example  of  the  working  of  competition  under  similar 
conditions  with  which  to  make  comparison. 

Particularly  weak  would  it  be  to  allow  the  mere  fear 
of  a  temporary  disturbance  of  business  to  turn  us  from 
a  safe  permanent  policy.  The  thoughtful  man  can  have 
no  patience  with  the  complaint  that  the  government  is 
interfering  with  business  or  lowering  the  prices  of 
securities  by  enforcing  the  anti-trust  law.  Suppose  an 
industrial  depression  should  be  brought  about  ?  Is  that 
a  heavy  price  to  pay  for  protecting  the  decades  and  the 
centuries  of  the  future  against  a  mighty  evil  ?  Granted 
that  it  is  uncertain  whether  the  trust  regime  would 


84  THE  TRUST   PROBLEM 

be  a  mighty  evil,  the  mere  possibiHty  that  it  would 
prove  such  is  enough  to  justify  a  present  sacrifice  to 
avert  it. 

The  thoughtful  opponent  of  trusts  does  not  urge  that, 
as  the  phrase  goes,  the  government  should  "  run 
amuck."  It  need  not  in  a  year  or  two  attack  every 
combination  without  due  inquiry  as  to  whether  it 
actually  possesses  or  threatens  monopoly  power,  or  as 
to  the  manner  in  which  it  is  exercising  such  power  as 
it  does  possess.  A  policy  once  determined  upon  and 
definitely  announced  may  be  carried  out  with  reason- 
able deliberation  and  consideration  of  all  interests. 
But  it  is  high  time  that  an  end  shall  be  put  to  all  doubt 
of  the  intention  of  the  people.  Either  they  must  pro- 
claim their  determination  to  maintain  a  regime  of  com- 
petition in  manufactures  and  trade  for  an  indefinite 
period  to  come,  or  they  must  promptly  declare  them- 
selves for  the  policy  of  regulation.  The  safe  policy  for 
today  is  prohibition  of  trusts  and  other  monopolistic  com- 
binations. It  is  the  vigorous  enforcement  of  the  anti- 
trust laws,  aided  by  the  provision  of  expert  administrative 
machinery  such  as  the  new  trade  commission. 

Whether  the  ultimate  policy  adopted  toward  the 
trust  be  laissez  faire,  regulation  or  prohibition,  we  shall, 
in  all  probability,  find  it  necessary  to  supplement  the 
chosen  policy  by  vigorous  exercise  of  the  taxing  power. 
Taxation  can  take  away  a  large  part  of  monopoly  profits 
and  other  unearned  gains  whether  derived  from  trusts  and 
pools,  from  railroads,  from  banking,  from  control  of  land 
and  other  natural  resources,  or  from  any  other  source. 

Direct  taxation  of  trusts  and  other  business  enter- 
prises with  a  view  to  taking  away  excessive  gains  would 
encounter  practically  the  same  difficulties  as  regulation 


ALLEGED  ADVANTAGES   OF  TRUSTS        85 

of  prices  and  profits.  Heavy  income  taxes  upon 
individuals,  particularly  if  progressive,  are  very  hard 
to  enforce.  Inheritance  taxes  would  be  more  feasible. 
Progressive  inheritance  taxes,  even  with  rates  such 
that  much  the  greater  part  of  the  largest  fortunes  would 
be  taken  by  the  government,  would,  in  the  opinion  of 
many  thoughtful  men,  be  neither  unjust  nor  socially 
disadvantageous.  They  are  defensible  even  when 
applied  to  fortunes  derived  from  strictly  legitimate 
business.  Taxes  of  this  sort  might  in  some  degree  tend 
to  check  the  accumulation  of  capital  and  to  prevent  the 
efficient  captain  of  industry  from  exercising  his  talents 
to  the  utmost,  but  the  effect  in  these  directions  would 
probably  not  be  very  marked.  There  might,  too,  be 
some  difficulty  in  enforcing  collection  and  preventing 
evasion,  but  on  the  whole  the  system  would  go  far 
toward  correcting  that  immense  disparity  of  wealth 
and  of  opportunity  which  is  the  main  source  of  social 
unrest. 


CHAPTER  V 

THE  TRUST  LEGISLATION  OF  1914 

Two  important  acts  relating  to  trusts  and  corporations 
have  just  been  adopted  by  Congress.  They  repre- 
sent the  fruition  of  the  pohcy  laid  down  in  the  last 
national  platform  of  the  Democratic  party.  They  are 
"  administration  measures."  In  fact,  it  is  doubtful 
whether  without  the  persistent  and  forceful  leadership 
of  President  Wilson  the  conflicting  views  in  Congress 
could  have  been  harmonized  and  the  legislation  passed  in 
addition  to  the  other  important  and  long-debated  meas- 
ures which  have  occupied  the  attention  of  that  body. 

The  "  administration "  bills  regarding  trusts  and 
corporations  were  introduced  into  Congress  at  the  very 
beginning  of  1914.  They  were  under  almost  continuous 
consideration  by  the  two  houses  and  their  committees 
for  nine  months  before  enactment.  Many  of  the  crudi- 
ties of  the  original  bills  have  been  eliminated  and  in 
general  the  provisions  as  adopted  are  workable  and 
understandable.  In  fact,  if  the  destruction  of  trusts 
and  the  maintenance  of  competition  be  accepted  as  the 
proper  policy,  these  acts  must  be  approved  for  the  most 
part  as  a  valuable  aid  in  carrying  out  that  policy.  The 
present  work  has  sought  to  prove  that  this  policy  is  on 
the  whole  the  best  for  the  American  people. 

As  might  be  expected,  there  were  efforts  in  Congress, 
particularly  on  the  part  of  the  Progressive  party,  to 


LEGISLATION   OF   1914  87 

turn  the  trust  legislation  in  the  direction  of  regulation 
rather  than  prohibition.  The  Democrats,  however, 
stood  with  practically  united  front  for  the  policy  of 
suppressing  combinations  and  many  Republicans  joined 
with  them. 

The  two  acts  are  entitled  respectively:  "  An  Act  to 
supplement  existing  laws  against  unlawful  restraints 
and  monopolies  and  for  other  purposes,"  and  "  An  Act 
to  create  a  federal  trade  commission,  to  define  its 
powers  and  duties  and  for  other  purposes."  We  shall 
call  them  briefly  the  anti-trust  act  and  the  trade-com- 
mission act.  The  trade-commission  bill,  as  it  passed 
the  House,  was  substantially  confined  to  procedure,  to 
machinery  and  methods  for  enforcing  the  laws.  The 
Senate,  however,  inserted  in  this  bill  provisions  with 
respect  to  unfair  competitive  methods,  and  these  stand 
in  the  act  as  finally  adopted,  altho  they  more  logically 
belong  in  the  other  act,  which  is  chiefly  concerned  with 
prohibitions  of  unlawful  practices. 

It  is  perhaps  needless  to  call  attention  to  the  fact  that 
both  these  acts  are,  of  necessity,  limited  to  fields  over 
which  the  federal  government  has  jurisdiction.  Ex- 
cept certain  provisions  on  national  banks,  they  deal 
exclusively  with  interstate  and  foreign  commerce. 

The  new  prohibitions  and  definitions  of  unlawful 
practices  in  the  two  acts  fall  under  three  main  heads: 
(1)  those  relating  to  competitive  methods;  (2)  those 
relating  to  methods  and  forms  of  combination  in  re- 
straint of  trade;  and  (3)  those  relating  to  mismanage- 
ment of  railroads. 


88  THE  TRUST  PROBLEM 


I.   Unfair  Competitive  Methods 

Of  the  provisions  relating  to  methods  of  competition 
there  are  three,  —  as  to  unfair  methods  in  general,  as  to 
price  discrimination,  and  as  to  restrictive  sales  and 
leases.  The  first  named  was  not  in  either  bill  as  it 
passed  the  House  but  was  added  by  the  Senate.  Being 
comprehensive  in  character  it  would,  if  broadly  inter- 
preted, have  rendered  unnecessary  the  more  specific 
provisions  of  the  House  bill  regarding  competitive 
methods  and  these  were  accordingly  struck  out  by  the 
Senate.  In  the  conference  committee  of  the  two 
houses,  however,  they  were  restored,  and  they  were 
finally  adopted,  tho  with  considerable  amendment. 

Section  5  of  the  trade-commission  act  provides  simply 
"  that  unfair  methods  of  competition  in  commerce  are 
hereby  declared  unlawful."  This  applies  to  individuals 
and  firms  as  well  as  corporations.  It  adds  no  definitions 
or  qualifications,  leaving  the  determination  of  what 
constitutes  unfair  competition  to  the  Trade  Commis- 
sion and  the  courts.  In  this  respect  the  provision  is 
similar  to  that  of  the  interstate  commerce  act,  which 
merely  declares  unreasonable  railroad  rates  to  be  unlaw- 
ful, leaving  it  to  the  Interstate  Commerce  Commission 
and  the  courts  to  determine  what  rates  are  unreason- 
able. In  other  words,  Congress  has  established  a  stand- 
ard and  delegated  to  other  agencies  the  sub-legislative 
power  of  applying  or  interpreting  that  standard. 

There  was  much  opposition  to  this  general  provision 
on  the  ground  of  its  vagueness.  It  was  stoutly  main- 
tained that  no  business  man  would  know  where  he 
stood,  what  he  could  and  what  he  could  not  do.     The 


LEGISLATION   OF   1914  89 

reply  to  this  was  that  the  methods  of  unfah*  competition 
are  so  numerous,  so  varied  and  so  constantly  changing 
that  they  cannot  all  be  specifically  set  forth  by  Con- 
gress, and  that  a  law  which  attempted  to  do  so  would 
require  constant  amendment.  To  avoid  the  well- 
founded  objection  that  it  would  not  do  to  punish  a  man 
for  an  offense  indefinitely  described.  Congress  wisely 
prescribed  no  penalties  for  initial  violation  of  this 
section  but  provided  a  special  and  appropriate  proced- 
ure for  enforcement. 

This  procedure  begins  with  action  by  the  Federal 
Trade  Commission,  a  body  whose  composition  and  other 
powers  are  more  fully  described  later.  No  court  can 
take  initial  jurisdiction  of  an  alleged  offense  against 
this  section  of  the  law;  no  prosecuting  attorney  bring 
an  indictment.  The  commission  is  not  even  obliged 
to  take  action.  The  law  declares  that  whenever  the 
commission  has  reason  to  believe  that  any  person  or 
concern  is  using  unfair  methods  of  competition  it  shall 
proceed,  "if  it  shall  appear  to  the  commission  that  a 
proceeding  by  it  in  respect  thereof  would  be  to  the 
interest  of  the  public."  The  language  just  quoted  was 
incorporated  in  the  bill  in  the  conference  and  was  not  in 
it  as  first  passed  by  the  Senate.  While  in  a  sense  the 
clause  materially  weakens  the  law,  there  can  be  little 
doubt  of  its  propriety,  at  least  as  a  temporary  device. 
In  its  absence  the  commission  would  be  obliged  to  take 
up  every  case  of  unfair  competition,  however  unimpor- 
tant and  however  little  it  actually  tended  to  bring  about 
monopoly.  Instances  of  more  or  less  unfair  competi- 
tion are  simply  innumerable  in  the  business  world,  and 
it  is  vain  for  the  government  to  attempt,  under  present 
conditions,   to   prevent   them   all.      The   commission 


90  THE  TRUST  PROBLEM 

would  find  its  hands  full  indeed  if  it  had  to  take  up 
every  complaint  brought  before  it.  The  interference 
with  business  which  would  result  from  a  multitude  of 
proceedings  on  the  part  of  the  commission  would  prob- 
ably more  than  offset  the  good  accomplished  by  the 
actual  suppression  of  more  important  and  serious 
abuses. 

The  commission  having  decided  to  take  up  a  case  of 
unfair  competition  must  give  a  hearing,  after  which  it 
may  issue  an  order  requiring  the  discontinuance  of  the 
unfair  practice.  This  order,  however,  is  not  imme- 
diately enforceable.  If  the  person  or  concern  to  whom 
it  is  directed  fails  to  obey,  the  commission  must  apply 
to  the  circuit  court  of  appeals  for  its  enforcement.  It 
will  be  recalled  that  a  similar  procedure  formerly  pre- 
vailed in  case  of  the  failure  of  a  railroad  to  obey  an 
order  of  the  Interstate  Conmaerce  Conunission,  but  by 
the  amendment  of  1906  a  penalty  was  provided  for 
failing  to  obey  such  an  order  and  the  railroad  could 
escape  the  penalty  only  by  taking  the  initiative  in 
applying  to  the  courts  for  relief.  It  is  perhaps  unfortu- 
nate that  this  amended  procedure  was  not  followed  in 
the  trade-commission  act.  The  circuit  court  of  appeals 
is  given  exclusive  jurisdiction  of  cases  relating  to  orders 
of  the  commission,  thus  avoiding  the  delay  of  appeals 
from  lower  courts. 

The  power  of  review  given  to  the  court  with  respect 
to  orders  of  the  Trade  Commission  is  not  without  limits. 
The  law  provides  that  the  findings  of  the  commission 
as  to  the  facts,  if  supported  by  testimony,  shall  be 
conclusive,  tho  the  court,  if  it  deems  necessary,  may 
order  additional  evidence  to  be  taken  before  the  com- 
mission.     In  other  words,  the  court  is  supposed  to 


LEGISLATION   OF   1914  91 

confine  itself  to  questions  of  law.  Doubtless,  however, 
the  courts  will  treat  the  question  whether  a  particular 
practice  in  competition  is  unfair  or  otherwise  as  one  of 
law  rather  than  of  fact,  and  a  very  wide  field  for  judge- 
made  legislation  is  thus  opened. 

No  specific  penalties  appear  in  the  trade-commission 
act  for  failure  to  obey  an  order  of  the  court  confirming 
an  order  of  the  commission  with  respect  to  unfair 
competition.  However,  the  general  provision  con- 
tained in  the  anti-trust  act  as  to  penalties  for  contempt 
of  court  would  apply.  The  maximum  penalty  for  a 
natural  person  is  $1000  or  six  months'  imprisonment. 

In  the  anti-trust  bill  as  it  passed  the  House  the  prac- 
tices of  price  discrimination  and  of  restrictive  sales  and 
leases  were  made  subject  to  penalties  of  fine  and 
imprisonment.  In  the  act  as  finally  revised  by  the 
conference  committee  and  passed  these  penalties  were 
cut  out,  and  the  procedure  for  enforcing  the  prohibition 
of  these  practices  was  made  similar  to  that  for  enforc- 
ing the  general  provision  as  to  unfair  methods  of  com- 
petition. There  is  this  substantial  difference,  however, 
that  in  the  anti-trust  act  the  words  "  if  it  shall  appear 
to  the  commission  that  a  proceeding  by  it  would  be  to 
the  interest  of  the  public  "  do  not  appear. 

This  elimination  of  penalties  and  other  similar 
changes  made  in  the  conference  were  vigorously 
attacked  on  the  floor  both  of  House  and  Senate.  It 
was  charged  that  the  "  teeth  "  had  been  taken  out  of 
the  bills.  There  is  little  reason  to  doubt,  however, 
that  even  as  to  these  more  specifically  defined  practices 
it  is  much  better,  at  least  for  the  time  being,  that  pro- 
ceedings should  begin  only  with  the  Trade  Commission. 
Its  expert  investigation  of  the  facts  should  be  much  more 


92  THE  TRUST  PROBLEM 

satisfactory  than  could  be  expected  in  an  ordinary- 
criminal  prosecution.  Indeed,  in  all  probability  the 
law  will  be  enforced  more  vigorously  and  effectively 
under  this  procedure  than  it  could  have  been  in  any 
other  way.  It  is  a  great  mistake  to  suppose  that  the 
establishment  of  severe  penalties  for  statute-made 
offenses,  not  recognized  as  offenses  by  the  common 
practice  of  the  business  world,  will  forthwith  assure 
their  cessation. 

This  comprehensive  provision  regarding  unfair  com- 
petitive methods  bids  fair  to  inaugurate  a  marked 
improvement  in  business  practices  in  the  United  States 
and  to  do  much  toward  checking  the  growth  of  monop- 
oly. In  a  certain  sense  the  new  provision  adds  little 
to  the  Sherman  anti-trust  act.  It  will  be  recalled  that 
that  act  explicitly  prohibits  the  monopolization  of 
interstate  or  foreign  trade  or  the  attempt  to  monopolize 
it.  Unfair  competitive  practices,  if  carried  to  such  a 
degree  as  to  justify  their  suppression  by  government, 
are  in  most  cases,  if  not  in  all,  attempts  to  monopolize. 
The  most  significant  feature  of  the  new  legislation  is  the 
expert  machinery  for  investigating  the  facts  and  for 
making  at  least  the  initial  determination  as  to  what 
constitutes  an  unfair  practice  injurious  to  the  public 
interest. 

As  regards  price  discrimination,  the  anti-trust  bill 
as  it  passed  the  House  provided  that  any  person  who 
discriminated  in  price  between  different  purchasers  in 
the  same  or  different  sections  "  with  the  purpose  or 
intent  thereby  to  destroy  or  wrongfully  injure  the 
business  of  a  competitor "  was  subject  to  penalty. 
Rejected  by  the  Senate,  restored  and  amended  in  con- 
ference, the  section  (§  2  of  the  anti-trust  act)  omits  the 


LEGISLATION   OF   1914  93 

words  just  quoted  and  declares  such  discrimination 
unlawful  only  where  the  effect  "  may  be  to  substantially 
lessen  competition  or  tend  to  create  a  monopoly." 
Moreover,  to  the  unimportant  and  proper  exceptions 
contained  in  the  House  bill  is  added  the  exception  of 
discrimination  "  made  in  good  faith  to  meet  competi- 
tion." 

The  wisdom  of  the  first  of  these  two  changes  can 
scarcely  be  doubted.  The  purpose  of  all  competition, 
at  least  in  a  sense,  is  to  destroy  the  business  of  competi- 
tors. Price  discrimination  is  an  all  but  universal 
practice  and  is  not  necessarily  injurious  or  calculated 
to  bring  about  a  monopoly.  The  House  bill  if  broadly 
interpreted  would  virtually  have  prohibited  price 
discrimination  altogether;  it  went  too  far.  On  the 
other  hand,  to  permit  price  discrimination  when  made 
to  "  meet  competition  "  may  largely  defeat  the  effective- 
ness of  this  section.  The  great  corporation  or  combina- 
tion that  seeks  to  drive  out  a  small  competitor  by  price 
discrimination  usually  maintains  that  all  it  does  is  in 
good  faith  to  meet  competition.  The  Standard  Oil 
Company,  for  example,  may  have  the  entire  oil  trade 
of  a  given  town.  It  may  be  charging  excesssive  prices 
there.  A  competitor  seeking  to  gain  a  foothold  enters 
the  town  and  offers  oil  at  a  somewhat  lower  price,  but 
still  a  fair  price.  The  Standard  meets  this  price,  per- 
haps goes  below  it.  The  merchants  being  accustomed 
to  deal  with  the  Standard  give  little  patronage  to  the 
competitor,  who  must  cut  again,  and  so  the  process  goes 
on  till  prices  are  below  cost.  Meantime  the  Standard 
recoups  itself  for  reduced  prices  in  the  town  in  question 
by  advancing  them  elsewhere;  the  less  fortunate 
competitor  is  driven  out  of  business.      It  is  doubtful 


94  THE  TRUST  PROBLEM 

whether  under  the  phraseology  of  the  new  statute  such 
tactics  could  be  held  unlawful,  altho  they  certainly 
would  tend  to  create  monopoly. 

It  would  appear,  therefore,  that  the  section  with 
regard  to  price  discrimination,  so  far  from  adding  to 
the  effectiveness  of  the  general  provision  as  to  unfair 
competitive  methods,  may  actually  weaken  it. 

The  Senate,  as  already  indicated,  struck  out  the  pro- 
vision of  the  House  bill  prohibiting  in  general  terms 
the  practice  of  restrictive  sales  and  leases.  It  substi- 
tuted, however,  a  somewhat  similar  provision  relating 
only  to  patented  articles.  The  Senate  evidently  feared 
lest  the  holder  of  a  patent  might  claim  by  reason  of 
the  patent  the  right  to  do  that  which  if  done  by  others 
would  be  held  unfair  competition.  The  courts  had 
already  upheld  restrictive  sales  and  leases  of  patented 
articles.  In  conference,  however,  this  section  of  the 
bill  was  again  made  general  in  application,  explicit 
reference  being  made  to  both  patented  and  unpatented 
articles.  Section  3  of  the  anti-trust  act  declares  it  un- 
lawful for  any  person  to  lease  or  sell  goods  or  fix  a  price 
therefor  on  the  condition  or  understanding  that  the 
lessee  or  purchaser  shall  not  use  or  deal  in  the  goods  of  a 
competitor.  In  conference  was  added  the  qualification 
''  where  the  effect  .  .  .  may  be  to  substantially  lessen 
competition  or  tend  to  create  a  monopoly." 

Again  there  can  be  no  doubt  of  the  wisdom  of  this 
qualifying  clause.  It  is  common  in  many  branches  of 
business  to  make  sales  or  leases  subject  to  the  condition 
of  exclusive  patronage.  The  practice  is  by  no  means 
necessarily  objectionable.  It  is  substantially  akin  to 
the  practice  of  establishing  agencies  which  handle  goods 
on  conunission  or  on  a  salary  basis,  and  which  are  not 


LEGISLATION  OF  1914  95 

allowed  to  handle  similar  goods  of  other  sellers.  One 
seller  has  one  dealer  to  handle  his  goods  exclusively, 
another  competing  seller  another  dealer  and  so  on. 
Competition  instead  of  being  restrained  may  be  made 
the  more  effective  thereby.  Often  this  may  be  the  only 
effective  way  of  securing  the  distribution  of  the  goods 
in  a  given  locality.  An  unqualified  prohibition  of 
"  tying  contracts  "  would  have  been  unfortunate.  On 
the  other  hand,  such  contracts  have  been  in  some  cases 
an  important  means  of  creating  or  protecting  monopoly, 
and  where  that  is  the  case  they  should  be  prohibited  as 
the  law  now  prohibits  them. 

It  may  be  noted  that  there  was  a  provision  in  the  bill 
as  it  passed  the  House  making  it  unlawful  for  mine 
operators  and  certain  other  concerns  to  refuse  to  sell 
their  products  to  any  responsible  person.  This  was 
struck  out  by  the  Senate  as  of  doubtful  constitutionality 
and  has  not  been  restored. 

II.  New  Provisions  on  Combinations  in 
Restraint  of  Trade 

We  come  now  to  consider  those  provisions  of  the  new 
legislation  which  seek  to  clarify  and  extend  the  defini- 
tions of  forbidden  contracts  and  combinations  in 
restraint  of  trade.  These  provisions,  which  are  con- 
fined to  the  anti-trust  act,  relate  chiefly  to  intercor- 
porate stockholdings  and  to  interlocking  directorates. 

If  broadly  interpreted,  the  Sherman  anti-trust  act 
without  amendment  could  be  made  to  reach  every 
harmful,  or  potentially  harmful,  combination  in  re- 
straint of  interstate  trade,  however  indirect  its  form. 
That  act  declares  "  every  contract,  combination  in  the 


96  THE  TRUST  PROBLEM 

form  of  trust  or  otherwise,  or  conspiracy  in  restraint  of 
trade  "  to  be  unlawful.  The  language  is  comprehensive 
in  the  extreme.  To  be  sure,  the  Supreme  Court  has 
declared  that  the  Sherman  act  must  be  interpreted  in 
the  "  light  of  reason  ";  that  there  may  be  certain  con- 
tracts or  combinations  which  restrain  trade  in  only  a 
reasonable  manner  and  which  Congress  did  not  intend 
to  make  unlawful.  President  Taft  and  others  have 
made  it  clear,  however,  that  the  Court  did  not  in  this 
statement  refer  to  any  contract  or  combination  that 
would  in  any  way  injure  the  people,  nor  did  it  contem- 
plate substituting  its  own  judgment  for  that  of  Congress. 
Those  restraints  of  trade  which  in  the  light  of  reason 
might  be  held  lawful  are  only  of  a  very  limited  class, 
such  as  were  lawful  at  common  law,  and  such  as  practi- 
cally every  one  recognizes  to  be  perfectly  legitimate. 
There  were  members  of  Congress  who  proposed  so  to 
amend  the  Sherman  act  as  to  leave  no  discretion  what- 
ever to  the  courts.  Practically,  tho  they  would  not 
have  stated  it  in  so  many  words,  they  would  have  had 
the  law  declare  any  restraint  of  trade,  whether  reason- 
able or  unreasonable,  to  be  unlawful.  Better  counsels 
prevailed,  however,  and  no  such  provision  appears  in 
the  new  legislation. 

The  Sherman  law  being  thus  broad  and  compre- 
hensive, the  lawyer  and  the  economist  alike  look  with 
critical  eye  upon  any  attempt  to  add  to  its  definitions. 
Has  the  new  legislation  strengthened  our  ability  to 
prevent  combinations  in  restraint  of  trade  ?  Has  it 
forbidden  anything  which  ought  not  to  be  forbidden  ? 
Has  it  gone  far  enough,  or  gone  too  far  ? 

Section  7  of  the  anti-trust  act  contains  the  pro- 
visions on  intercorporate  stockholdings.     It  declares. 


LEGISLATION  OF  1914  97 

first,  that  no  corporation  shall  acquu-e  du-ectly  or  in- 
du-ectly  any  part  of  the  stock  of  another  corporation, 
where  the  effect  "  may  be  to  substantially  lessen 
competition  "  between  the  two  corporations,  "or  to 
restrain  such  commerce  ...  or  to  tend  to  create  a 
monopoly."  A  similar  provision  is  made  with  regard 
to  holding  companies;  no  corporation  may  acquire 
stocks  in  two  or  more  corporations  under  the  con- 
ditions above  set  forth.  Common  carriers  are  in- 
cluded among  the  corporations  covered.  There  are 
various  exceptions  to  these  broad  prohibitions,  but  the 
only  one  of  importance  relates  to  stockholdings  hereto- 
fore acquired.  In  other  words,  the  act  applies  only  to 
future  acquisitions  of  stock  and  does  not  undertake 
to  undo  things  already  accomplished.  Of  course  there 
is  a  clause  to  the  effect  that  the  act  shall  not  make  law- 
ful anything  theretofore  prohibited  by  the  anti-trust 
laws;  intercorporate  stockholdings  which  were  unlaw- 
ful under  the  Sherman  act  may  still  be  attacked. 

This  section  seems  to  add  nothing  of  real  value  to  the 
Sherman  act.  Moreover,  if  strictly  construed,  it 
prohibits  that  which  should  not  be  prohibited.  Under 
the  Sherman  law  the  courts  have  already  held  inter- 
corporate stockholdings  unlawful  when  they  result  in 
unreasonable  restraint  of  trade  or  in  a  tendency  toward 
monopoly.  Several  of  the  great  trust  cases  decided 
by  the  Supreme  Court  have  turned  on  this  point,  — 
the  Standard  Oil  case,  the  Tobacco  case,  the  Northern 
Securities  case,  the  Union  Pacific  case  and  others.  The 
new  law,  however,  prohibits  the  acquisition  of  stocks  not 
merely  where  competition  in  the  trade,  —  that  is  in  the 
business  concerned  as  a  whole,  —  is  restrained ;  but 
also  where  merely  the  competition  between  the  partic- 


98  THE  TRUST  PROBLEM 

ular  corporations  directly  concerned  is  lessened.  A 
lessening  of  the  competition  between  two  corporations 
may  increase  the  competition  in  the  branch  of  industry 
or  commerce  in  which  they  are  engaged.  One  corpora- 
tion may  control,  say,  one-tenth  of  a  given  branch  and 
another  corporation  one-twentieth.  The  acquisition 
of  stock  in  one  by  the  other  may  completely  destroy 
competition  between  them,  but  may  thereby  render 
them  more  efficient  in  competing  with  other  concerns. 

Doubtless  the  exercise  of  discretion  by  prosecuting 
authorities  and  courts  will  result  in  weakening  the 
prohibitions  of  this  section.  In  few  cases  perhaps  will 
suits  actually  be  brought  and  won  by  the  government 
unless  the  public  interest  is  threatened  by  the  inter- 
corporate stockholding.  That,  however,  does  not 
justify  placing  an  economic  and  legal  absurdity  on  the 
statute  book.  It  is  strange  that  Congress  did  not  use, 
with  respect  to  intercorporate  stockholding,  language 
similar  to  that  used  regarding  interlocking  directorates, 
which  is  far  more  closely  guarded. 

The  administration  anti-trust  bill,  as  originally  intro- 
duced in  Congress,  contained  a  provision  with  regard  to 
interlocking  directorates  which,  had  it  been  enacted, 
would  have  been  little  less  than  disastrous.  Virtually 
it  prohibited  the  interlocking  of  directorates  altogether, 
regardless  of  its  effect.  If  two  corporations,  which 
together  had  only  a  small  fraction  of  a  given  business, 
should  have  one  common  director,  and  if  such  corpora- 
tions were  natural  competitors,  the  corporations  would 
have  been  made  subject  to  the  penalties  of  the  Sherman 
anti-trust  law. 

As  it  passed  the  House  this  absurd  and  drastic  pro- 
vision was  toned  down  greatly,  and  in  the  Senate  it  was 


LEGISLATION  OF   1914  99 

still  farther  shorn  of  claws  by  the  omission  of  the 
penalty.  In  its  final  form  the  section  (§  8  of  the  anti- 
trust act)  applies  only  to  large  corporations  and  only  in 
cases  where  the  elimination  of  competition  by  agree- 
ment between  them  would  be  unlawful.  No  person,  it 
declares,  shall,  after  two  years  from  the  passage  of  the 
act,  be  a  director  in  any  two  or  more  corporations,  any 
one  of  which  has  capital,  surplus  and  undivided  profits 
aggregating  more  than  one  million  dollars,  if  such  cor- 
porations have  been  theretofore  competitors  "  so  that 
the  elimination  of  competition  by  agreement  between 
them  would  constitute  a  violation  of  any  of  the  pro- 
visions of  any  of  the  anti-trust  laws."  Nothing  is 
said  about  community  of  officers  or  employees  other 
than  directors.  Banks  and  common  carriers  are 
exempted  from  this  general  provision;  but  there  are 
special  provisions  regarding  banks. 

If  the  fact  that  two  or  more  corporations  had  common 
directors  did  actually  result  in  restraint  of  competition, 
—  not  merely  between  the  corporations  concerned  but 
in  the  trade  generally,  —  the  courts  could  and  probably 
would  have  held  it  unlawful  under  the  Sherman  act. 
In  several  decisions  in  which  combinations  based  on 
intercorporate  stock  ownership  have  been  dissolved, 
the  courts  have  prohibited  the  segregated  parts  from 
having  common  officers  or  directors.  The  new  act, 
however,  goes  farther  and  prohibits  corporations  from 
having  the  same  directors  even  tho  they  do  as  a  matter 
of  fact  actively  compete,  provided  only  that  an  agree- 
ment between  the  corporations  to  eliminate  competition 
would  be  unlawful.  In  effect  it  makes  the  interlocking 
of  directors  in  such  case  conclusive  evidence  of  com- 
bination to  restrain  trade.     Perhaps  on  the  whole  this 


100  THE  TRUST  PROBLEM 

is  wise,  for  there  is  at  least  some  tendency  to  eliminate 
competition  where  even  a  single  individual  is  a  director 
in  two  or  more  potentially  competitive  corporations. 

The  importance  of  this  legislation,  however,  has  been 
greatly  exaggerated  by  its  sponsors.  The  real  evil  is 
not  community  of  directors  but  community  of  stock 
ownership.  It  will  be  easy  enough  for  an  individual 
or  group  who  hold  stock  in  several  corporations  to  elect 
different  men  as  directors  who  will  act  in  harmony. 
The  director  is  but  the  voice  of  those  who  elect  him. 
Dummy  directors  are  no  new  thing  and  they  will 
doubtless  be  more  numerous  under  this  act  than  at 
present. 

Apparently  no  one  seriously  proposed  in  Congress 
to  restrict  community  of  stock  ownership  by  individuals. 
As  I  have  pointed  out  elsewhere,^  the  courts  have 
expressly  tolerated  community  of  interest  in  cases 
where  it  was  almost  self-evident  that  the  result  must  be 
to  prevent  competition.  They  have  seemed  to  consider 
it  an  inalienable  right  of  the  individual  to  hold  what 
stocks  he  pleases.  The  "  dissolution  "  of  trusts  by 
distributing  the  stocks  of  subsidiary  companies  pro 
rata  among  the  stockholders  of  a  controlling  company 
is  an  economic  absurdity.  The  investigations  of  the 
Pujo  committee  emphasized  the  enormous  extent  and 
influence  of  community  of  stock  interest  as  well  as  of 
interlocking  directorates.  But  Congress  seemed  to 
be  of  the  same  mind  as  the  courts  with  respect  to  the 
impossibility,  or  the  unconstitutionality,  of  attempting 
to  check  the  former.  Some  day  our  law  makers  will 
grow  bolder;  they  will  not  permit  any  supposed  right 
of  private  property  to  serve  as  a  bulwark  for  monopoly. 

>  Pages  35  fF. 


LEGISLATION  OF   1914  101 

The  special  provisions  regarding  interlocking  direc- 
torates of  banks,  as  passed  by  the  House,  were  struck 
out  by  the  Senate  on  the  ground  that  the  matter  could 
best  be  provided  for  in  connection  with  the  banking 
laws.  These  provisions  were,  however,  restored,  with 
some  modifications,  by  the  conference  committee  and 
enacted  into  law.  They  prohibit  interlocking  of 
directors,  officers  or  employees  among  large  banks,  — 
those  having  deposits,  capital,  surplus  and  undivided 
profits  aggregating  more  than  five  million  dollars,  — 
wherever  located.  Moreover,  subject  to  minor  excep- 
tions, no  two  banks,  of  whatever  size,  in  a  city  of  more 
than  200,000  inhabitants  may  have  a  conunon  director, 
officer  or  employee.  Naturally  Congress  has  not  under- 
taken to  regulate  private  banks  or  those  organized  under 
state  laws,  but  the  act  does  apply  to  relations  between 
a  national  bank  on  the  one  hand  and  a  private  or  state 
bank  on  the  other. 

This  provision  as  to  banks  is  not  qualified  by  any 
reference  to  the  effect  of  the  interlocking.  It  is  not  on 
its  face  directed  against  monopoly  or  restraint  of  com- 
petition among  banks  or  in  other  business.  The  con- 
stitutionality of  this  provision  cannot  be  questioned, 
since  the  national  banks  are  creatures  of  the  federal 
government.  As  to  its  justice  and  propriety  there  may 
be  some  doubt,  and  as  to  its  effectiveness,  for  the  reasons 
already  mentioned  above,  still  more  doubt.  The 
investigations  of  the  Pujo  committee  have  indeed  made 
clear  the  immense  power  of  concentrated  banking  in- 
terests. If  that  power  can  be  weakened  by  this  new 
legislation,  most  people  will  welcome  it,  even  the  the 
law  may  incidentally  prevent  interlocking  directorates 
among  banks  where  no  disadvantages  would  result 
therefrom. 


102  THE  TRUST  PROBLEM 

It  may  be  noted  that  there  are  no  direct  penalties  for 
violation  of  the  provisions  as  to  intercorporate  stock- 
holding and  interlocking  directorates.  The  enforce- 
ment, except  in  the  case  of  banks,  rests  with  the  Federal 
Trade  Commission  by  a  procedure  similar  to  that  in  the 
case  of  unfair  competitive  methods. 

While,  as  already  indicated,  a  good  many  teeth  were 
drawn  from  the  anti-trust  bill  during  its  progress 
through  Congress,  there  remains  one  provision  which 
distinctly  increases  the  terrors  of  the  law.  Section  14 
of  the  new  act  provides  that  whenever  a  corporation 
shall  violate  any  of  the  penal  provisions  of  any  of  the 
anti-trust  laws,  such  violation  shall  be  deemed  to  be 
also  that  of  the  individual  directors,  officers  or  agents 
who  have  authorized,  ordered  or  done  any  of  the  acts 
constituting  such  violation.  Upon  conviction  therefor 
any  such  director,  officer  or  agent  is  subject  to  fine  not 
exceeding  $5000  or  imprisonment  not  exceeding  one 
year  or  both. 

As  is  well  known,  practically  no  imprisonments  have 
heretofore  resulted  from  the  enforcement  of  the  anti- 
trust laws.  Most  of  the  fines  in  criminal  cases  under 
them  have  been  assessed  against  corporations.  It  is 
true  that  individuals  could  be  punished  for  conspiracy 
under  the  Sherman  act;  but  this  new  section  will  prob- 
ably make  it  somewhat  easier  to  punish  them.  There  is 
no  immediate  likelihood,  however,  that  the  prisons  will 
be  overcrowded  with  trust  offenders. 

The  anti- trust  act  provides  (§  4)  that  any  person 
injured  in  business  or  property  by  reason  of  the  doing  of 
anything  forbidden  in  the  anti-trust  laws  may  sue  and 
recover  three-fold  damages.  This  merely  extends  the 
similar  provision  of  the  Sherman  act  so  as  to  cover  all 
anti-trust  laws  including  the  new  act  itself. 


LEGISLATION   OF   1914  103 

Section  5  provides  that  a  final  judgment  or  decree  in 
any  suit  brought  by  the  United  States  under  the  anti- 
trust laws,  to  the  effect  that  the  defendant  has  violated 
those  laws,  shall  be  prima  facie  evidence  against  such 
defendant  in  any  suit  or  proceeding  brought  by  any 
other  party  against  him  or  it  under  the  same  laws. 
The  House  bill  would  have  made  such  judgment  or 
decree  conclusive  evidence,  but  the  words  prima  facie 
were  substituted  in  the  Senate.  No  one  can  seriously 
doubt  the  propriety  of  this  new  provision.  It  is  a  need- 
less burden  upon  a  state,  or  upon  a  person  injured  by 
a  violation  of  the  anti-trust  laws,  to  have  to  prove  inde- 
pendently that  the  trust  laws  have  been  violated  when 
the  matter  has  already  been  determined  in  a  govern- 
ment suit. 


III.   Mismanagement  of  Railroads 

The  revelations  of  the  Pujo  investigation,  of  the  New 
Haven  investigation  and  of  other  recent  investigations 
with  reference  to  mismanagement  of  railroads  and  the 
mulcting  of  their  stockholders  have  led  to  some  drastic 
provisions,  placed,  perhaps  somewhat  illogically,  in 
the  new  anti-trust  act. 

Those  investigations  had  shown  that  great  banks  had 
often  made  unreasonable  gains  from  the  financing  of 
railroads;  that  dummy  construction  companies  and 
equipment  concerns  in  which  railroad  officers  were 
interested  had  made  fat  profits  at  the  expense  of  the 
stockholders  of  the  road.  The  anti-trust  bill,  as  it 
passed  the  House,  simply  prohibited  interlocking  of 
directors  or  ofl&cers  between  a  railroad  and  a  concern 
of  the  kind  specified  with  which  it  did  business.     In  the 


104  THE  TRUST   PROBLEM 

Senate,  however,  it  was  suggested  that  there  might  be 
cases  where  such  relations  were  proper  and  desirable 
and  that  regulation  rather  than  prohibition  was  called 
for.  Substantially  the  provisions  adopted  by  the 
Senate  have  now  become  law  (§  10).  No  common 
carrier  may  have  dealings  in  securities  or  in  supplies 
or  may  make  contracts  for  construction  or  maintenance, 
to  the  amount  of  more  than  $50,000  in  any  one  year, 
with  a  concern  in  which  any  director  or  any  of  certain 
specified  officers  of  the  railroad  is  interested,  except 
under  the  conditions  specified  in  the  act.  These  con- 
ditions are,  virtually,  competition,  publicity  and  super- 
vision by  the  Interstate  Commerce  Commission.  If  the 
concern  in  question  is  the  most  favorable  bidder  under 
competitive  bidding,  the  railroad  may  do  business  with 
it,  but  it  must  report  the  transactions  to  the  Inter- 
state Commerce  Commission  in  detail  and  the  com- 
mission may  investigate  to  see  whether  there  has  been 
any  abuse.  Penalties  are  provided  for  violation  of 
this  section. 

Another  outcome  of  the  recent  revelations  of  railroad 
abuses  is  in  section  9  of  the  anti-trust  act,  which  de- 
clares that  an  officer  or  director  of  a  common  carrier 
who  "  embezzles,  steals,  abstracts  or  wilfully  mis- 
applies or  wilfully  permits  to  be  misapplied  "  its  money, 
securities  or  property  is  guilty  of  a  felony.  Such  acts 
are,  in  general,  already  made  crimes  under  the  laws  of 
the  individual  states,  but  it  will  perhaps  be  possible  for 
the  federal  government  to  enforce  them  more  effectively 
in  the  case  of  interstate  carriers. 


LEGISLATION  OF  1914  105 


IV.  The  Federal  Trade  Commission 

By  all  odds  the  most  important  feature  of  the  new 
trust  legislation  is  the  creation  of  a  Federal  Trade  Com- 
mission. The  commission  is  composed  of  five  members, 
appointed  by  the  President  with  the  advice  and  consent 
of  the  Senate.  Not  more  than  three  may  be  of  the  same 
political  party  —  a  provision  which  is  of  doubtful 
merit,  as  it  really  recognizes  party  lines  in  the  admin- 
istration of  that  which  should  be  looked  upon  as  wholly 
outside  of  those  lines.  The  term  of  office  is  seven 
years  and  the  salary  $10,000.  The  commission  is  in 
fact  to  be  a  body  of  similar  dignity  with  the  Interstate 
Commerce  Commission,  tho  the  latter  has  seven  mem- 
bers. 

The  commission  is  to  take  over  the  Bureau  of  Cor- 
porations and  -  the  head  of  that  bureau,  Honorable 
Joseph  E.  Davies,  has  been  appointed  a  member  of 
the  commission.  The  expert  employees  of  the  bu- 
reau will  be  a  useful  nucleus  for  the  force  of  the 
commission.  It  may  be  noted  that  the  special  experts 
and  examiners  which  the  commission  is  authorized  to 
employ  are  exempted  from  the  classified  civil  service. 
It  is  a  long  step  from  a  bureau  of  corporations  headed  by 
a  single  commissioner  at  a  salary  of  $5000  to  a  board  of 
five  members,  each  paid  twice  that  salary.  Useful  as 
have  been  the  investigations  of  the  bureau,  the  public 
has  a  right  to  expect  from  this  great  new  connission 
results  of  a  far  more  important  character. 

The  new  act  contains  full  provisions  as  to  the  investi- 
gatory powers  of  the  Trade  Commission.  In  substance 
it  gives  the  commission  complete  power  to  investigate 


106  THE  TRUST  PROBLEM 

the  affairs  of  all  corporations  engaged  in  interstate  or 
foreign  commerce,  except  common  carriers  and  banks. 
The  commission  and  its  agents  have  access  to  the  books 
and  records  of  corporations  and  may  require  by  sub- 
poena the  production  of  any  or  all  of  their  papers. 
Witnesses  may  also  be  required  to  appear  and  testify. 
There  are  the  usual  provisions  regarding  testimony 
tending  to  incriminate  its  giver;  he  may  not  refuse  to 
testify  on  that  account,  but  is  thereafter  immune  from 
prosecution. 

The  investigatory  powers  of  the  commission  thus  far 
mentioned  are  not  materially  greater  than  those  hereto- 
fore possessed  by  the  Bureau  of  Corporations.  But 
the  law  creating  that  bureau  made  no  definite  provision 
for  annual  or  special  reports  from  corporations,  and 
the  general  powers  of  investigation  conferred  on  it 
have  never  been  assumed  to  empower  the  bureau  to 
demand  such  reports.  The  new  law,  however,  explicitly 
authorizes  the  Trade  Commission  to  require  annual  or 
special  reports  from  any  corporation  engaged  in  inter- 
state or  foreign  commerce  except  banks  and  common 
carriers.  The  commission  is  not  compelled  to  call  for 
reports  from  every  corporation;  it  can  determine  what 
classes  of  corporations  or  what  particular  corporations 
must  report  and  also  determine  the  scope  and  character 
of  the  information  to  be  furnished.  The  commission 
may  require  the  reports  to  be  under  oath. 

These  powers  of  the  commission  with  respect  to 
reports  from  corporations  are  approximately  the  same 
as  those  given  to  the  Interstate  Commerce  Commission 
with  respect  to  railroads.  The  Trade  Commission, 
however,  lacks  the  power  possessed  by  the  latter  to 
prescribe  systems  of  accounts  for  corporations  and  to 


LEGISLATION  OF   1914  107 

prevent  them  from  keeping  other  accounts.  It  would 
doubtless  be  premature  to  give  the  Trade  Commission 
that  power.  To  devise  satisfactory  accounting  systems 
for  the  multiphcity  of  corporations  in  different  lines  of 
business  would  take  years.  Obviously  the  accounts 
cannot  be  uniform  to  any  such  degree  as  those  of  rail- 
roads. For  this  reason  the  reports  to  be  required  from 
corporations  will  necessarily  at  first  be  less  detailed 
than  those  made  by  railroads,  and  will  probably  not  be 
so  reliable,  even  tho  made  in  entire  good  faith. 

The  new  act  prescribes  penalties  for  failiu-e  to  make  I 
reports  required  by  the  commission  or  for  making  false 
reports.  But  it  goes  much  further.  Any  person  who 
wilfully  makes  or  causes  to  be  made  any  false  entry  in 
any  account  or  record  kept  by  a  corporation  is  declared 
guilty  of  a  misdemeanor.  So  too  is  any  one  who  neg- 
lects or  fails  to  make  full  and  correct  entries  in  such 
accounts  and  records  of  all  facts  and  transactions 
appertaining  to  the  business  of  the  corporation.  This 
certainly  is  a  drastic  provision  and  will  have  to  be  inter- 
preted with  reasonable  liberality.  Finally,  penalties 
are  prescribed  for  altering  or  falsifying  any  documen- 
tary evidence  of  a  corporation  or  for  removing  it  out 
of  the  jurisdiction  of  the  United  States.  The  salutary 
character  of  these  provisions  is  obvious. 

The  information  secured  from  the  reports  of  corpora- 
tions to  the  Trade  Commission  will  not  merely  be  of 
great  aid  to  that  commission  itself  in  the  exercise  of  its 
other  powers,  but  if  the  more  important  data  are  pub- 
lished they  will  serve  other  most  useful  purposes.  It 
has  been  a  common  contention  that  publicity  alone  will 
go  far  toward  preventing  excessive  charges  and  other 
corporate  abuses.      The  benefits  of  publicity  in  this 


108  THE  TRUST  PROBLEM 

direction  have  sometimes  been  exaggerated,  but  they 
are  important.  If  the  reports  show  that  corporations 
in  a  given  Une  of  business  are  making  unusually  large 
profits  competition  will  be  the  more  likely  to  enter  the 
field  and  bring  down  prices. 

Under  the  new  act  the  Trade  Commission  itself 
decides  what  information  obtained  by  it,  —  by  what- 
ever means  obtained,  —  shall  be  made  public,  save  only 
that  the  law  prohibits  the  commission  from  publishing 
trade  secrets  and  names  of  customers.  The  term 
"  trade  secrets  "  will  undoubtedly  be  taken  to  mean 
merely  secrets  as  to  processes  of  production  and  the 
like.  The  general  language  of  the  law  seems  to  imply 
the  expectation  that  a  great  deal  of  information  secured 
by  the  commission  will  be  made  public.  It  is  sincerely 
to  be  hoped  that  the  Trade  Commission  will  see  fit  to 
make  public  all  the  important  information  it  secures 
through  the  system  of  reports  or  in  other  ways,  just  as 
the  Interstate  Commerce  Commission  does.  It  will  be 
recalled  that  under  the  law  creating  the  Bureau  of 
Corporations  that  bureau  itself  has  no  power  to  deter- 
mine what  information  secured  by  it  shall  be  made 
public,  the  determination  resting  with  the  President. 
As  a  matter  of  fact  the  President,  presumably  at  the 
instance  of  the  bureau,  has  withheld  some  information 
regarding  individual  corporations  which  would  have 
been  of  material  value  to  the  public.  A  few  years  ago 
sentiment  in  the  business  world  was  scarcely  ripe  for 
such  a  measure  of  publicity  as  may  properly  be  de- 
manded today.  In  fact  great  corporations  are  more 
and  more  on  their  own  initiative  adopting  the  policy 
of  making  full  reports  to  the  public.  The  injury  to  a 
business  concern  from  the  disclosure  of  its  affairs  is  sel- 


LEGISLATION   OF   1914  109 

dom  serious,  and  any  concern  whose  business  is  so  great 
as  to  affect  materially  the  welfare  of  masses  of  people 
has  no  right  to  consider  itself  a  private  institution. 

Reference  has  already  been  made  to  the  important 
powers  of  the  Federal  Trade  Commission  as  to  the 
enforcement  of  the  new  provisions  of  the  anti-trust 
legislation.  The  general  prohibition  of  unfair  competi- 
tive methods,  that  of  price  discrimination  and  that  of 
restrictive  sales  and  leases  are  enforceable  only  through 
the  commission.  The  same  is  true  of  the  prohibitions 
with  regard  to  intercorporate  stock  ownership  and 
interlocking  directorates,  —  except  as  they  relate  to 
banks  and  common  carriers,  where  other  federal 
boards  have  jurisdiction.  This  is  clearly  as  it  should 
be,  at  least  for  the  time  being.  The  commission 
through  its  expert  investigation  will  be  able  soon  to 
amass  a  great  body  of  information  regarding  com- 
petitive methods  and  methods  of  combination.  Such 
information  is  largely  lacking  at  the  present  time.  On 
the  basis  of  such  information  the  commission  should 
develop  a  sounder  judgment  regarding  these  matters 
than  could  be  expected  of  prosecuting  officers  or  judges. 

In  addition  to  its  special  powers  in  the  enforcement  of 
the  provisions  mentioned,  the  commission  is  required  to 
aid  in  the  enforcement  of  the  anti-trust  laws  generally 
(§6).  On  the  direction  of  the  President  or  either  house 
of  Congress  it  has  the  power  and  duty  to  investigate 
and  report  the  facts  relating  to  alleged  violation  of  the 
anti-trust  acts  by  any  corporation.  Upon  the  applica- 
tion of  the  attorney  general  it  must  investigate  and 
make  recommendations  in  order  that  a  corporation 
alleged  to  be  violating  the  anti-trust  acts  "  may  there- 
after maintain  its  organization,  management  and  con- 


110  THE  TRUST  PROBLEM 

duct  of  business  in  accordance  with  law."  It  is  well 
known  that  in  a  number  of  instances  in  recent  years 
great  corporate  combinations  have,  without  suit  by 
the  government,  changed  their  organization  or  methods 
of  business,  with  a  view  to  conforming  to  the  Sherman 
act.  In  such  cases  they  have  usually  consulted  the 
attorney  general  and  secured  his  approval.  Thus  to 
readjust  business  without  appeal  to  the  courts  is  evi- 
dently desirable.  It  saves  expense  and  friction.  It 
is  obvious,  however,  that  an  expert  body  like  the  Trade 
Commission  will  be  in  a  much  better  position  than  the 
attorney  general  to  suggest  the  proper  changes  in 
practices  and  in  organization. 

Again,  the  new  law  provides  (§  7)  that  the  Trade 
Commission  may  be  called  upon  for  assistance  and 
advice  in  connection  with  the  actual  conduct  of  a  suit  in 
equity  brought  by  the  government  under  the  anti- 
trust acts.  The  court  may  upon  the  conclusion  of  the 
testimony  in  such  a  suit,  if  it  is  of  the  opinion  that  a 
decree  should  be  made  against  the  defendants,  '^  refer 
said  suit  to  the  commission,  as  a  master  in  chancery, 
to  ascertain  and  report  an  appropriate  form  of  decree 
therein."  The  court,  of  course,  can  reject  such  a 
report  in  whole  or  in  part.  It  is  very  likely  not  only 
that  the  courts  will  in  fact  often  call  upon  the  com- 
mission but  that  they  will  usually  follow  its  suggestions. 
This  again  is  a  provision  of  much  importance.  Had 
the  recommendations  of  an  expert  body  such  as  the 
Trade  Commission  been  before  the  Court  in  connection 
with  the  dissolution  of  the  Standard  Oil  Company,  for 
example,  it  is  scarcely  conceivable  that  that  dissolution 
should  have  taken  a  form  so  ineffective  as  it  did.  How 
to  secure  a  satisfactory  dissolution  of  a  trust  is  an 


LEGISLATION   OF   1914  111 

immensely  difficult  economic  problem,  rather  than  a 
legal  problem.  A  plan  must  be  devised  which  will  at 
the  same  time  effectively  restore  competition  and  avoid 
needless  hardship  to  the  owners  or  stockholders  of  the 
combination  and  undue  shock  to  the  business  world. 

Finally,  the  Trade  Commission  under  the  new  law 
(§6)  may  on  its  own  initiative  investigate  the  manner  in 
which  any  decree  against  a  defendant  in  a  suit  brought 
by  the  government  to  restrain  violation  of  the  anti- 
trust acts  is  being  carried  out.  Upon  the  application 
of  the  attorney  general  it  is  its  duty  to  make  such  an 
investigation.  At  present  it  too  often  happens  that 
when  a  court  has  ordered  the  dissolution  of  a  combina- 
tion, or  issued  some  other  order  for  the  enforcement  of 
the  anti-trust  laws,  very  little  attention  is  given  by 
any  one  to  the  question  whether  the  decree  is  actually 
obeyed.  The  commission  should  be  able  to  render  a 
valuable  service  in  this  direction. 

The  Trade  Commission  is  also  directed  to  report  to 
Congress  from  time  to  time  its  recommendations  for 
further  legislation  regarding  corporations,  combinations 
and  trade  practices.  There  is  every  reason  to  believe 
that  the  commission  will  have  a  great  and  beneficial 
influence  upon  future  legislation.  If  Congress  had 
gone  no  farther  at  the  present  session  than  to  create 
such  a  commission,  give  it  powers  of  investigation  and 
call  upon  it  for  recommendations  regarding  future 
action,  the  trust  legislation  would  have  been  well 
worth  while.  The  ordinary  methods  of  inquiry  on 
which  Congress  bases  legislation  are  by  no  means 
adequate  to  a  problem  as  vast  and  complex  as  the 
trust  problem.  The  time  is  not  yet  ripe  for  the  enact- 
ment by  Congress  of  a  mass  of  details  regarding  com- 


112  THE  TRUST  PROBLEM 

binations,  corporations  and  competitive  methods.  In 
fact,  a  good  deal  even  of  the  legislation  actually  adopted 
at  this  session  has  been,  as  already  shown,  a  trifle  imma- 
ture. It  is  better  to  proceed  slowly  and  surely  than 
to  make  blunders. 

The  creation  of  the  Trade  Conmiission  is,  therefore, 
a  great  forward  step.  All  parties  in  Congress  were 
alike  in  favoring  such  a  commission.  Public  sentiment 
throughout  the  country  demanded  it.  The  trusts  and 
corporations  were  in  general  glad  to  see  it  established. 
An  inquiry  sent  out  by  the  National  Chamber  of  Com- 
merce to  its  constituents,  consisting  of  trade  organiza- 
tions throughout  the  country,  elicited  an  almost 
unanimous  recommendation  of  such  a  conamission. 
It  matters  not  so  much  what  its  particular  powers  are 
at  the  outset,  or  what  are  for  the  time  being  the  pro- 
visions of  law  as  to  trusts,  combinations  and  trade 
practices.  The  important  thing  is  to  have  a  body  of 
proper  dignity  devoted  to  the  expert  consideration  of 
these  great  problems.^ 

1  It  is  not  necessary  here  to  discuss  the  important  new  provisions  of  the  anti-trust 
act  with  reference  to  labor  or  those  with  reference  to  the  use  of  the  injunction  and  the 
procedure  for  contempt  of  court.  While  the  latter  will  have  some  bearing  on  cases 
against  trusts  and  corporations,  their  chief  significance  is  with  respect  to  labor  cases. 


APPENDIX 


FEDERAL  LAWS   RELATING   TO   TRUSTS   AND 
ALLIED   MATTERS 

I.   Sherman  Anti-trust  Law 

Approved  July  S,  1890 

An  Act  to  protect  trade  and  commerce 
against  unlawful  restraints  and  monopolies 

Sec.  \.  Every  contract,  combination  in  the  form  of  trust  or 
otherwise,  or  conspiracj^,  in  restraint  of  trade  or  commerce  among 
the  several  States,  or  with  foreign  nations,  is  hereby  declared  to  be 
illegal.  Every  person  who  shall  make  any  such  contract,  or  engage 
in  any  such  combination  or  conspiracy,  shall  be  deemed  guilty  of  a 
misdemeanor,  and,  on  conviction  thereof,  shall  be  punished  by  fine 
not  exceeding  five  thousand  dollars,  or  by  imprisonment  not  exceed- 
ing one  year,  or  by  both  said  punishments,  in  the  discretion  of  the 
court. 

Sec.  2.  Everj^  person  who  shall  monopolize,  or  attempt  to 
monopolize,  or  combine  or  conspire  ^\^th  anj'  other  person  or  persons, 
to  monopolize  any  part  of  the  trade  or  commerce  among  the  several 
States,  or  with  foreign  nations,  shall  be  deemed  guilty  of  a  misde- 
meanor, and,  on  conviction  thereof,  shall  be  punished  by  fine  not 
exceeding  five  thousand  dollars,  or  by  imprisonment  not  exceeding 
one  year,  or  by  both  said  punishments,  in  the  discretion  of  the  court. 

Sec.  3.  Every  contract,  combination  in  form  of  trust  or  other- 
wise, or  conspiracy,  in  restraint  of  trade  or  commerce  in  any  Terri- 
tory of  the  United  States  or  of  the  District  of  Columbia,  or  in 
restraint  of  trade  or  commerce  between  any  such  Territory  and 
another,  or  between  any  such  Territory  or  Territories  and  any  State 
or  States  or  the  District  of  Columbia,  or  with  foreign  nations,  or 
between  the  District  of  Columbia  and  any  State  or  States  or  foreign 
nations,  is  hereby  declared  illegal.  Everj^  person  who  shall  make 
any  such  contract  or  engage  in  an}^  such  combination  or  conspiracy 
shall  be  deemed  guilty  of  a  misdemeanor,  and,  on  conviction  thereof, 
shall  be  punished  by  fine  not  exceeding  five  thousand  dollars,  or  by 
imprisonment  not  exceeding  one  year,  or  by  both  said  punishments, 
in  the  discretion  of  the  court. 

115 


116  APPENDIX 

Sec.  4.  The  several  [circuit  courts]  ^  of  the  United  States  are 
hereby  invested  with  jurisdiction  to  prevent  and  restrain  violations 
of  this  act;  and  it  shall  be  the  duty  of  the  several  district-attorneys 
of  the  United  States,  in  their  respective  districts,  under  the  direc- 
tion of  the  Attorney-General,  to  institute  proceedings  in  equity  to 
prevent  and  restrain  such  violations.  Such  proceedings  may  be  by 
way  of  petition  setting  forth  the  case  and  praying  that  such  violation 
shall  be  enjoined  or  otherwise  prohibited.  When  the  parties  com- 
plained of  shall  have  been  duly  notified  of  such  petition  the  court 
shall  proceed,  as  soon  as  may  be,  to  the  hearing  and  determination 
of  the  case;  and  pending  such  petition  and  before  final  decree,  the 
court  may  at  any  time  make  such  temporary  restraining  order  or 
prohibition  as  shall  be  deemed  just  in  the  premises. 

Sec.  5.  Whenever  it  shall  appear  to  the  court  before  which  any 
proceeding  under  section  four  of  this  act  may  be  pending,  that  the 
ends  of  justice  require  that  other  parties  should  be  brought  before 
the  court,  the  court  may  cause  them  to  be  summoned,  whether  they 
reside  in  the  district  in  which  the  court  is  held  or  not;  and  subpoenas 
to  that  end  may  be  served  in  any  district  by  the  marshal  thereof. 

Sec.  6.  Any  property  owned  under  any  contract  or  by  any  com- 
bination or  pursuant  to  any  conspiracy  (and  being  the  subject 
thereof)  mentioned  in  section  one  of  this  act,  and  being  in  the  course 
of  transportation  from  one  State  to  another,  or  to  a  foreign  country, 
shall  be  forfeited  to  the  United  States,  and  may  be  seized  and  con- 
demned by  like  proceedings  as  those  provided  by  law  for  the  for- 
feiture, seizure,  and  condemnation  of  property  imported  into  the 
United  States  contrary  to  law. 

Sec.  7.  Any  person  who  shall  be  injured  in  liis  business  or  prop- 
erty by  any  other  person  or  corporation  by  reason  of  anything 
forbidden  or  declared  to  be  unlawful  by  this  act  may  sue  therefor  in 
any  [circuit  court]  of  the  United  States  in  the  district  in  which  the 
defendant  resides  or  is  found,  without  respect  to  the  amount  in  con- 
troversy, and  shall  recover  threefold  the  damages  by  him  sustained, 
and  the  costs  of  suit,  including  a  reasonable  attorney's  fee. 

Sec.  8.  The  word  "  person,"  or  "  persons,"  wherever  used  in 
this  act  shall  be  deemed  to  include  corporations  and  associations 
existing  under  or  authorized  by  the  laws  of  either  the  United  States, 
the  laws  of  any  of  the  territories,  the  laws  of  any  State  or  the  laws  of 
any  foreign  country. 

(26  Statutes  at  Large,  210.) 

'  The  Circuit  Courts  have  been  abolished  and  their  jurisdiction  conferred  on  the 
district  courts. 


ANTI-TRUST   ACT   OF    1914  117 

II.   Anti-trust  Act  op  1914 

Approved  October  15,  1914,  Chap.  S12 

An  Act  to  supplement  existing  laws  against 
unlawful  restraints  and  monopolies,  and  for  other  purposes 

Sec.  1.  "Anti-trust  laws,"  as  used  herein,  includes  the  Act 
entitled  "  An  Act  to  protect  trade  and  commerce  against  unlawful 
restraints  and  monopolies,"  approved  July  second,  eighteen  hun- 
dred and  ninety;  sections  seventy-three  to  seventy-seven,  inclusive, 
of  an  Act  entitled  "  An  Act  to  reduce  taxation,  to  provide  revenue 
for  the  Government,  and  for  other  purposes,"  of  August  twenty- 
seventh,  eighteen  hundred  and  ninety-four;  an  Act  entitled  "  An 
Act  to  amend  sections  seventy-three  and  seventy-six  of  the  Act  of 
August  twenty-seventh,  eighteen  hundred  and  ninety-four,  entitled 
'  An  Act  to  reduce  taxation,  to  provide  revenue  for  the  Government, 
and  for  other  purposes,'  "  approved  February  twelfth,  nineteen 
hundred  and  thirteen;  and  also  this  Act. 

"  Commerce,"  as  used  herein,  means  trade  or  conamerce  among 
the  several  States  and  with  foreign  nations,  or  between  the  District 
of  Columbia  or  any  Territory  of  the  United  States  and  any  State, 
Territory,  or  foreign  nation,  or  between  any  insular  possessions  or 
other  places  under  the  jurisdiction  of  the  United  States,  or  between 
any  such  possession  or  place  and  any  State  or  Territory  of  the  United 
States  or  the  District  of  Columbia  or  any  foreign  nation,  or  within 
the  District  of  Columbia  or  any  Territory  or  any  insular  possession 
or  other  place  under  the  jurisdiction  of  the  United  States:  Provided, 
That  nothing  in  this  Act  contained  shall  apply  to  the  Philippine 
Islands. 

The  word  "  person  "  or  "  persons  "  wherever  used  in  this  Act 
shall  be  deemed  to  include  corporations  and  associations  existing 
under  or  authorized  by  the  laws  of  either  the  United  States,  the  laws 
of  any  of  the  Territories,  the  laws  of  any  State,  or  the  laws  of  any 
foreign  country. 

Sec.  2.  It  shall  be  unlawful  for  any  person  engaged  in  commerce, 
in  the  course  of  such  commerce,  either  directly  or  indirectly  to  dis- 
criminate in  price  between  different  purchasers  of  commodities, 
which  commodities  are  sold  for  use,  consumption,  or  resale  within 
the  United  States  or  any  Territory  thereof  or  the  District  of  Colum- 
bia or  any  insular  possession  or  other  place  under  the  jurisdiction  of 
the  United  States,  where  the  effect  of  such  discrimination  may  be  to 
substantially  lessen  competition  or  tend  to  create  a  monopoly  in  any 


118  APPENDIX 

line  of  commerce:  Provided,  That  nothing  herein  contained  shall 
prevent  discrimination  in  price  between  purchasers  of  commodities 
on  account  of  differences  in  the  grade,  quaUty,  or  quantity  of  the 
commodity  sold,  or  that  makes  only  due  allowance  for  difference  in 
the  cost  of  selling  or  transportation,  or  discrimination  in  price  in  the 
same  or  different  communities  made  in  good  faith  to  meet  competi- 
tion: And  provided  further,  That  nothing  herein  contained  shall  pre- 
vent persons  engaged  in  seUing  goods,  wares,  or  merchandise  in 
commerce  from  selecting  their  own  customers  in  bona  fide  transac- 
tions and  not  in  restraint  of  trade. 

Sec.  3.  It  shall  be  unlawful  for  any  person  engaged  in  commerce, 
in  the  course  of  such  commerce,  to  lease  or  make  a  sale  or  contract 
for  sale  of  goods,  wares,  merchandise,  machinery,  suppHes  or  other 
commodities,  whether  patented  or  unpatented,  for  use,  consumption 
or  resale  within  the  United  States  or  any  Territory  thereof  or  the 
District  of  Columbia  or  any  insular  possession  or  other  place  under 
the  jurisdiction  of  the  United  States,  or  fix  a  price  charged  therefor, 
or  discount  from,  or  rebate  upon,  such  price,  on  the  condition, 
agreement  or  understanding  that  the  lessee  or  purchaser  thereof 
shall  not  use  or  deal  in  the  goods,  wares,  merchandise,  machinery, 
supplies  or  other  commodities  of  a  competitor  or  competitors  of  the 
lessor  or  seller,  where  the  effect  of  such  lease,  sale,  or  contract  for  sale 
or  such  condition,  agreement  or  understanding  may  be  to  substan- 
tially lessen  competition  or  tend  to  create  a  monopoly  in  any  line  of 
commerce. 

Sec.  4.  Any  person  who  shall  be  injured  in  his  business  or  prop- 
erty by  reason  of  anything  forbidden  in  the  anti-trust  laws  may  sue 
therefor  in  any  district  court  of  the  United  States  in  the  district  in 
which  the  defendant  resides  or  is  found  or  has  an  agent,  without 
respect  to  the  amount  in  controversy,  and  shall  recover  tlu'eefold  the 
damages  by  him  sustained,  and  the  cost  of  suit,  including  a  reason- 
able attorney's  fee. 

Sec.  5.  A  final  judgment  or  decree  hereafter  rendered  in  any 
criminal  prosecution  or  in  any  suit  or  proceeding  in  equity  brought 
by  or  on  behalf  of  the  United  States  under  the  anti-trust  laws  to  the 
effect  that  a  defendant  has  violated  said  laws  shall  be  prima  facie 
evidence  against  such  defendant  in  any  suit  or  proceeding  brought 
by  any  other  party  against  such  defendant  under  said  laws  as  to  all 
matters  respecting  which  said  judgment  or  decree  would  be  an  estop- 
pel as  between  the  parties  thereto:  Provided,  This  section  shall  not 
apply  to  consent  judgments  or  decrees  entered  before  any  testimony 
has  been  taken :   Provided  further,  This  section  shall  not  apply  to 


ANTI-TRUST   ACT   OF   1914  119 

consent  judgments  or  decrees  rendered  in  criminal  proceedings  or 
suits  in  equity,  now  pending,  in  which  the  taking  of  testimony  has 
been  commenced  but  has  not  been  concluded,  provided  such  judg- 
ments or  decrees  are  rendered  before  any  further  testimony  is 
taken. 

Whenever  any  suit  or  proceeding  in  equity  or  criminal  prosecution 
is  instituted  by  the  United  States  to  prevent,  restrain  or  punish  vio- 
lations of  any  of  the  anti-trust  laws,  the  running  of  the  statute  of 
limitations  in  respect  of  each  and  every  private  right  of  action  arising 
under  said  laws  and  based  in  whole  or  in  part  on  any  matter  com- 
plained of  in  said  suit  or  proceeding  shall  be  suspended  during  the 
pendency  thereof. 

Sec.  6.  The  labor  of  a  human  being  is  not  a  commodity  or  article 
of  commerce.  Nothing  contained  in  the  anti-trust  laws  shall  be 
construed  to  forbid  the  existence  and  operation  of  labor,  agricultural, 
or  horticultural  organizations,  instituted  for  the  purposes  of  mutual 
help,  and  not  having  capital  stock  or  conducted  for  profit,  or  to  for- 
bid or  restrain  individual  members  of  such  organizations  from  law- 
fully carrying  out  the  legitimate  objects  thereof;  nor  shall  such 
organizations,  or  the  members  thereof,  be  held  or  construed  to  be 
illegal  combinations  or  conspiracies  in  restraint  of  trade,  under  the 
anti-trust  laws. 

Sec.  7.  No  corporation  engaged  in  commerce  shall  acquire, 
directly  or  indirectly,  the  whole  or  any  part  of  the  stock  or  other 
share  capital  of  another  corporation  engaged  also  in  commerce,  where 
the  effect  of  such  acquisition  may  be  to  substantially  lessen  competi- 
tion between  the  corporation  whose  stock  is  so  acquired  and  the 
corporation  making  the  acquisition,  or  to  restrain  such  commerce  in 
any  section  or  community,  or  tend  to  create  a  monopoly  of  any  line 
of  commerce. 

No  corporation  shall  acquire,  directly  or  indirectly,  the  whole  or 
any  part  of  the  stock  or  other  share  capital  of  two  or  more  corpora- 
tions engaged  in  commerce  where  the  effect  of  such  acquisition,  or 
the  use  of  such  stock  by  the  voting  or  granting  of  proxies  or  other- 
wise, may  be  to  substantially  lessen  competition  between  such  cor- 
porations, or  any  of  them,  whose  stock  or  other  share  capital  is  so 
acquired,  or  to  restrain  such  commerce  in  any  section  or  community, 
or  tend  to  create  a  monopoly  of  any  line  of  commerce. 

This  section  shall  not  apply  to  corporations  purchasing  such  stock 
solely  for  investment  and  not  using  the  same  by  voting  or  other- 
wise to  bring  about,  or  in  attempting  to  bring  about,  the  substantial 
lessening  of  competition.      Nor  shall  anything  contained  in  this 


120  APPENDIX 

section  prevent  a  corporation  engaged  in  commerce  from  causing  the 
formation  of  subsidiary  corporations  for  the  actual  carrying  on  of 
their  immediate  lawful  business,  or  the  natural  and  legitimate 
branches  or  extensions  thereof,  or  from  owning  and  holding  all  or  a 
part  of  the  stock  of  such  subsidiary  corporations,  when  the  effect  of 
such  formation  is  not  to  substantially  lessen  competition. 

Nor  shall  anything  herein  contained  be  construed  to  prohibit  any 
common  carrier  subject  to  the  laws  to  regulate  commerce  from  aiding 
in  the  construction  of  branches  or  short  lines  so  located  as  to  become 
feeders  to  the  main  line  of  the  company  so  aiding  in  such  construction 
or  from  acquiring  or  owning  all  or  any  part  of  the  stock  of  such 
branch  lines,  nor  to  prevent  any  such  common  carrier  from  acquiring 
and  owning  all  or  any  part  of  the  stock  of  a  branch  or  short  line  con- 
structed by  an  independent  company  where  there  is  no  substantial 
competition  between  the  company  owning  the  branch  line  so  con- 
structed and  the  company  owning  the  main  line  acquiring  the  prop- 
erty or  an  interest  therein,  nor  to  prevent  such  common  carrier  from 
extending  any  of  its  lines  through  the  medium  of  the  acquisition  of 
stock  or  otherwise  of  any  other  such  common  carrier  where  there  is 
no  substantial  competition  between  the  company  extending  its  lines 
and  the  company  whose  stock,  property,  or  an  interest  therein  is  so 
acquired. 

Nothing  contained  in  this  section  shall  be  held  to  affect  or  impair 
any  right  heretofore  legally  acquired :  Provided,  That  nothing  in  this 
section  shall  be  held  or  construed  to  authorize  or  make  lawful  any- 
thing heretofore  prohibited  or  made  illegal  by  the  anti-trust  laws,  nor 
to  exempt  any  person  from  the  penal  provisions  thereof  or  the  civil 
remedies  therein  provided. 

Sec.  8.  From  and  after  two  years  from  the  date  of  the  approval 
of  this  Act  no  person  shall  at  the  same  time  be  a  director  or  other  offi- 
cer or  employee  of  more  than  one  bank,  banking  association  or  trust 
company,  organized  or  operating  under  the  laws  of  the  United  States, 
either  of  which  has  deposits,  capital,  surplus,  and  undivided  profits 
aggregating  more  than  $5,000,000;  and  no  private  banker  or  person 
who  is  a  director  in  any  bank  or  trust  company,  organized  and  oper- 
ating under  the  laws  of  a  State,  having  deposits,  capital,  surplus,  and 
undivided  profits  aggregating  more  than  $5,000,000,  shall  be  eligible 
to  be  a  director  in  any  bank  or  banking  association  organized  or 
operating  under  the  laws  of  the  United  States.  The  ehgibility  of  a 
director,  officer,  or  employee  under  the  foregoing  provisions  shall  be 
determined  by  the  average  amount  of  deposits,  capital,  surplus,  and 
undivided  profits  as  shown  in  the  official  statements  of  such  bank, 


ANTI-TRUST   ACT   OF    1914  121 

banking  association,  or  trust  company  filed  as  provided  by  law  dur- 
ing the  fiscal  year  next  preceding  the  date  set  for  the  annual  election 
of  directors,  and  when  a  director,  officer,  or  employee  has  been 
elected  or  selected  in  accordance  with  the  provisions  of  this  Act  it 
shall  be  lawful  for  him  to  continue  as  such  for  one  year  thereafter 
under  said  election  or  employment. 

No  bank,  banking  association  or  trust  company,  organized  or  oper- 
ating under  the  laws  of  the  United  States,  in  any  city  or  incorporated 
town  or  village  of  more  than  two  hundred  thousand  inhabitants,  as 
shown  by  the  last  preceding  decennial  census  of  the  United  States, 
shall  have  as  a  director  or  other  officer  or  employee  any  private 
banker,  or  any  director  or  other  officer  or  employee  of  anj'^  other 
bank,  banking  association  or  trust  company  located  in  the  same 
place:  Provided,  That  nothing  in  this  section  shall  apply  to  mutual 
savings  banks  not  having  a  capital  stock  represented  by  shares: 
Provided  further,  That  a  director  or  other  officer  or  employee  of  such 
bank,  banking  association,  or  trust  company  may  be  a  director  or 
other  officer  or  employee  of  not  more  than  one  other  bank  or  trust 
company  organized  under  the  laws  of  the  United  States  or  any  State 
where  the  entire  capital  stock  of  one  is  owned  by  stockholders  in  the 
other:  And  provided  further.  That  nothing  contained  in  this  section 
shaU  forbid  a  director  of  class  A  of  a  Federal  reserve  bank,  as  defined 
in  the  Federal  Reserve  Act  from  being  an  officer  or  director  or  both 
an  officer  and  director  in  one  member  bank. 

That  from  and  after  two  years  from  the  date  of  the  approval  of 
this  Act  no  person  at  the  same  time  shall  be  a  director  in  any  two  or 
more  corporations,  any  one  of  which  has  capital,  surplus,  and  undi- 
vided profits  aggregating  more  than  $1,000,000,  engaged  in  whole  or 
in  part  in  commerce,  other  than  banks,  banking  associations,  trust 
companies  and  common  carriers  subject  to  the  Act  to  regulate  com- 
merce, approved  February  fourth,  eighteen  hundred  and  eighty- 
seven,  if  such  corporations  are  or  shall  have  been  theretofore,  by 
virtue  of  their  business  and  location  of  operation,  competitors,  so 
that  the  ehmination  of  competition  by  agreement  between  them 
would  constitute  a  violation  of  any  of  the  provisions  of  any  of  the 
anti-trust  laws.  The  eligibility  of  a  director  under  the  foregoing 
provision  shall  be  determined  by  the  aggregate  amount  of  the  capital, 
surplus,  and  undi\aded  profits,  exclusive  of  dividends  declared  but 
not  paid  to  stockholders,  at  the  end  of  the  fiscal  year  of  said  corpora- 
tion next  preceding  the  election  of  directors,  and  when  a  director  has 
been  elected  in  accordance  with  the  provisions  of  this  Act  it  shall  be 
lawful  for  him  to  continue  as  such  for  one  year  thereafter. 


122  APPENDIX 

When  any  person  elected  or  chosen  as  a  director  or  officer  or 
selected  as  an  employee  of  any  bank  or  other  corporation  subject  to 
the  provisions  of  this  Act  is  eligible  at  the  time  of  his  election  or 
selection  to  act  for  such  bank  or  other  corporation  in  such  capacitj-^ 
his  ehgibility  to  act  in  such  capacity  shall  not  be  affected  and  he 
shall  not  become  or  be  deemed  amenable  to  any  of  the  provisions 
hereof  by  reason  of  any  change  in  the  affairs  of  such  bank  or  other 
corporation  from  whatsoever  cause,  whether  specifically  excepted  by 
any  of  the  provisions  hereof  or  not,  until  the  expiration  of  one  year 
from  the  date  of  his  election  or  employment. 

Sec.  9.  Every  president,  director,  officer  or  manager  of  any  firm, 
association  or  corporation  engaged  in  commerce  as  a  common  carrier, 
who  embezzles,  steals,  abstracts  or  willfully  misapplies,  or  willfully 
permits  to  be  misapplied,  any  of  the  moneys,  funds,  credits,  securi- 
ties, property  or  assets  of  such  firm,  association  or  corporation,  aris- 
ing or  accruing  from,  or  used  in,  such  commerce,  in  whole  or  in  part, 
or  willfully  or  knowingly  converts  the  same  to  his  owai  use  or  to  the 
use  of  another,  shall  be  deemed  guilty  of  a  felony  and  upon  convic- 
tion shall  be  fined  not  less  than  $500  or  confined  in  the  penitentiary 
not  less  than  one  year  nor  more  than  ten  j^ears,  or  both,  in  the  dis- 
cretion of  the  court. 

Prosecutions  hereunder  may  be  in  the  district  court  of  the  United 
States  for  the  district  wherein  the  offense  may  have  been  committed. 

That  nothing  in  this  section  shall  be  held  to  take  away  or  impair 
the  jurisdiction  of  the  courts  of  the  several  States  under  the  laws 
thereof;  and  a  judgment  of  conviction  or  acquittal  on  the  merits 
under  the  laws  of  any  State  shall  be  a  bar  to  any  prosecution  here- 
under for  the  same  act  or  acts. 

Sec.  10.  After  two  years  from  the  approval  of  this  Act  no  com- 
mon carrier  engaged  in  commerce  shall  have  any  dealings  in  securi- 
ties, supplies  or  other  articles  of  commerce,  or  shall  make  or  have  any 
contracts  for  construction  or  maintenance  of  any  kind,  to  the  amount 
of  more  than  $50,000,  in  the  aggregate,  in  any  one  year,  with  another 
corporation,  firm,  partnership  or  association  when  the  said  common 
carrier  shall  have  upon  its  board  of  directors  or  as  its  president,  man- 
ager or  as  its  purchasing  or  selling  officer,  or  agent  in  the  particular 
transaction,  any  person  who  is  at  the  same  time  a  director,  manager, 
or  purchasing  or  selUng  officer  of,  or  who  has  any  substantial  interest 
in,  such  other  corporation,  firm,  partnership  or  association,  unless 
and  except  such  purchases  shall  be  made  from,  or  such  dealings  shall 
be  with,  the  bidder  whose  bid  is  the  most  favorable  to  such  common 
carrier,  to  be  ascertained  by  competitive  bidding  under  regulations 


ANTI-TRUST   ACT   OF   1914  123 

to  be  prescribed  by  rule  or  otherwise  by  the  Interstate  Commerce 
Commission.  No  bid  shall  be  received  unless  the  name  and  address 
of  the  bidder  or  the  names  and  addresses  of  the  officers,  directors  and 
general  managers  thereof,  if  the  bidder  be  a  corporation,  or  of  the 
members,  if  it  be  a  partnership  or  firm,  be  given  with  the  bid. 

Any  person  who  shall,  directly  or  indirectly,  do  or  attempt  to  do 
anything  to  prevent  any  one  from  bidding  or  shall  do  any  act  to  pre- 
vent free  and  fair  competition  among  the  bidders  or  those  desiring  to 
bid  shall  be  punished  as  prescribed  in  this  section  in  the  case  of  an 
officer  or  director. 

Every  such  common  carrier  having  any  such  transactions  or  mak- 
ing any  such  purchases  shall  within  thirtj^  days  after  making  the 
same  file  with  the  Interstate  Commerce  Conunission  a  full  and 
detailed  statement  of  the  transaction  showing  the  manner  of  the 
competitive  bidding,  who  were  the  bidders,  and  the  names  and 
addresses  of  the  directors  and  officers  of  the  corporations  and  the 
members  of  the  firm  or  partnership  bidding ;  and  whenever  the  said 
conunission  shall,  after  investigation  or  hearing,  have  reason  to 
believe  that  the  law  has  been  violated  in  and  about  the  said  pur- 
chases or  transactions  it  shall  transmit  all  papers  and  documents 
and  its  own  views  or  findings  regarding  the  transaction  to  the 
Attorney-  G  eneral . 

If  any  common  carrier  shall  violate  this  section  it  shall  be  fined  not 
exceeding  $25,000;  and  every  such  director,  agent,  manager  or 
officer  thereof  who  shall  have  knowingly  voted  for  or  directed  the 
act  constituting  such  violation  or  who  shall  have  aided  or  abetted  in 
such  violation  shall  be  deemed  guilty  of  a  misdemeanor  and  shall  be 
fined  not  exceeding  $5,000,  or  confined  in  jail  not  exceeding  one  year, 
or  both,  in  the  discretion  of  the  court. 

Sec.  11.  Authority  to  enforce  compliance  with  sections  two, 
three,  seven  and  eight  of  this  Act  by  the  persons  respectively  subject 
thereto  is  hereby  vested:  in  the  Interstate  Commerce  Conunission 
where  applicable  to  common  carriers,  in  the  Federal  Reserve  Board 
where  appUcable  to  banks,  banking  associations  and  trust  companies, 
and  in  the  Federal  Trade  Commission  where  applicable  to  all  other 
character  of  commerce,  to  be  exercised  as  follows: 

Whenever  the  conmiission  or  board  vested  with  jurisdiction 
thereof  shall  have  reason  to  beUeve  that  any  person  is  \nolating  or 
has  violated  any  of  the  provisions  of  sections  two,  three,  seven  and 
eight  of  this  Act,  it  shall  issue  and  serve  upon  such  person  a  com- 
plaint stating  its  charges  in  that  respect,  and  containing  a  notice  of  a 
hearing  upon  a  day  and  at  a  place  therein  fixed  at  least  thirty  days 


124  APPENDIX 

after  the  service  of  said  complaint.  The  person  so  complained  of 
shall  have  the  right  to  appear  at  the  place  and  time  so  fixed  and 
show  cause  why  an  order  should  not  be  entered  by  the  commission  or 
board  requiring  such  person  to  cease  and  desist  from  the  violation  of 
the  law  so  charged  in  said  complaint.  Any  person  may  make  appli- 
cation, and  upon  good  cause  shown  may  be  allowed  by  the  com- 
mission or  board,  to  intervene  and  appear  in  said  proceeding  by 
counsel  or  in  person.  The  testimony  in  any  such  proceeding  shall  be 
reduced  to  writing  and  filed  in  the  office  of  the  commission  or  board. 
If  upon  such  hearing  the  commission  or  board,  as  the  case  may 
be,  shall  be  of  the  opinion  that  anj^  of  the  provisions  of  said  sections 
have  been  or  are  being  violated,  it  shall  make  a  report  in  writing  in 
which  it  shall  state  its  findings  as  to  the  facts,  and  shall  issue  and 
cause  to  be  served  on  such  person  an  order  requiring  such  person  to 
cease  and  desist  from  such  violations,  and  divest  itself  of  the  stock 
held  or  rid  itself  of  the  directors  chosen  contrary  to  the  provisions  of 
sections  seven  and  eight  of  this  Act,  if  any  there  be,  in  the  manner 
and  within  the  time  fixed  by  said  order.  Until  a  transcript  of  the 
record  in  such  hearing  shall  have  been  filed  in  a  circuit  court  of 
appeals  of  the  United  States,  as  hereinafter  provided,  the  commis- 
sion or  board  may  at  any  time,  upon  such  notice  and  in  such  manner 
as  it  shall  deem  proper,  modify  or  set  aside,  in  whole  or  in  part,  any 
report  or  any  order  made  or  issued  by  it  under  this  section. 

If  such  person  fails  or  neglects  to  obey  such  order  of  the  commis- 
sion or  board  while  the  same  is  in  effect,  the  commission  or  board 
may  apply  to  the  circuit  court  of  appeals  of  the  United  States,  within 
any  circuit  where  the  violation  complained  of  was  or  is  being  com- 
mitted or  where  such  person  resides  or  carries  on  business,  for  the 
enforcement  of  its  order,  and  shall  certify  and  file  with  its  apphcation 
a  transcript  of  the  entire  record  in  the  proceeding,  including  all  the 
testimony  taken  and  the  report  and  order  of  the  commission  or 
board.  Upon  such  filing  of  the  application  and  transcript  the  court 
shall  cause  notice  thereof  to  be  served  upon  such  person  and  there- 
upon shall  have  jurisdiction  of  the  proceeding  and  of  the  question 
determined  therein,  and  shall  have  power  to  make  and  enter  upon 
the  pleadings,  testimony,  and  proceedings  set  forth  in  such  transcript 
a  decree  affirming,  modifying,  or  setting  aside  the  order  of  the  com- 
mission or  board.  The  findings  of  the  commission  or  board  as  to  the 
facts,  if  supported  by  testimony,  shall  be  conclusive.  If  either  party 
shall  apply  to  the  court  for  leave  to  adduce  additional  evidence,  and 
shall  show  to  the  satisfaction  of  the  court  that  such  additional  evi- 
dence is  material  and  that  there  were  reasonable  grounds  for  the 


ANTI-TRUST  ACT   OF   1914  125 

failure  to  adduce  such  evidence  in  the  proceeding  before  the  commis- 
sion or  board,  the  court  may  order  such  additional  evidence  to  be 
taken  before  the  commission  or  board  and  to  be  adduced  upon  the 
hearing  in  such  manner  and  upon  such  terms  and  conditions  as  to 
the  court  may  seem  proper.  The  commission  or  board  may  modify 
its  fiudings  as  to  the  facts,  or  make  new  findings,  by  reason  of  the 
additional  evidence  so  taken,  and  it  shall  file  such  modified  or  new 
findings,  which,  if  supported  by  testimony,  shall  be  conclusive,  and 
its  recommendation,  if  any,  for  the  modification  or  setting  aside  of 
its  original  order,  with  the  return  of  such  additional  evidence.  The 
judgment  and  decree  of  the  court  shall  be  final,  except  that  the  same 
shall  be  subject  to  review  by  the  Supreme  Court  upon  certiorari  as 
provided  in  section  two  hundred  and  forty  of  the  Judicial  Code. 

Any  party  required  by  such  order  of  the  commission  or  board  to 
cease  and  desist  from  a  violation  charged  may  obtain  a  review  of 
such  order  in  said  circuit  court  of  appeals  by  fiUng  in  the  court  a 
written  petition  praying  that  the  order  of  the  commission  or  board  be 
set  aside.  A  copy  of  such  petition  shall  be  forthwith  served  upon 
the  commission  or  board,  and  thereupon  the  commission  or  board 
forthwith  shall  certify  and  file  in  the  court  a  transcript  of  the  record 
as  hereinbefore  provided.  Upon  the  filing  of  the  transcript  the 
court  shall  have  the  same  jurisdiction  to  affirm,  set  aside,  or  modify 
the  order  of  the  commission  or  board  as  in  the  case  of  an  application 
by  the  commission  or  board  for  the  enforcement  of  its  order,  and  the 
findings  of  the  commission  or  board  as  to  the  facts,  if  supported  by 
testimony,  shall  in  like  manner  be  conclusive. 

The  jurisdiction  of  the  circuit  court  of  appeals  of  the  United  States 
to  enforce,  set  aside,  or  modify  orders  of  the  commission  or  board 
shall  be  exclusive. 

Such  proceedings  in  the  circuit  court  of  appeals  shall  be  given 
precedence  over  other  cases  pending  therein,  and  shall  be  in  every 
way  expedited.  No  order  of  the  commission  or  board  or  the  judg- 
ment of  the  court  to  enforce  the  same  shall  in  any  wise  relieve  or 
absolve  any  person  from  any  liability  under  the  anti-trust  Acts. 

Complaints,  orders,  and  other  processes  of  the  commission  or 
board  under  this  section  may  be  served  by  any  one  duly  authorized 
by  the  commission  or  board,  either  (a)  by  dehvering  a  copy  thereof 
to  the  person  to  be  served,  or  to  a  member  of  the  partnership  to  be 
served,  or  to  the  president,  secretary,  or  other  executive  officer  or  a 
director  of  the  corporation  to  be  served;  or  (b)  by  leaving  a  copy 
thereof  at  the  principal  office  or  place  of  business  of  such  person;  or 
(c)  by  registering  and  maiUng  a  copy  thereof  addressed  to  such  per- 


126  APPENDIX 

son  at  his  principal  office  or  place  of  business.  The  verified  return 
by  the  person  so  serving  said  complaint,  order,  or  other  process 
setting  forth  the  manner  of  said  service  shall  be  proof  of  the  same, 
and  the  return  post-oflfice  receipt  for  said  complaint,  order,  or  other 
process  registered  and  mailed  as  aforesaid  shall  be  proof  of  the  ser- 
vice of  the  same. 

Sec.  12.  Any  suit,  action,  or  proceeding  under  the  anti-trust  laws 
against  a  corporation  may  be  brought  not  onl}^  in  the  judicial  district 
whereof  it  is  an  inhabitant,  but  also  in  any  district  wherein  it  may  be 
found  or  transacts  business;  and  all  process  in  such  cases  may  be 
serA^ed  in  the  district  of  which  it  is  an  inhabitant,  or  wherever  it  may 
be  found. 

Sec.  13.  In  any  suit,  action,  or  proceeding  brought  by  or  on 
behalf  of  the  United  States  subpoenas  for  witnesses  who  are  required 
to  attend  a  court  of  the  United  States  in  any  judicial  district  in  any 
case,  civil  or  criminal,  arising  under  the  anti-trust  laws  may  run  into 
any  other  district:  Provided,  That  in  civil  cases  no  writ  of  subpoena 
shall  issue  for  witnesses  living  out  of  the  district  in  which  the  court  is 
held  at  a  greater  distance  than  one  hundred  miles  from  the  place  of 
holding  the  same  without  the  permission  of  the  trial  court  being  first 
had  upon  proper  appUcation  and  cause  shown. 

Sec.  14.  Whenever  a  corporation  shall  violate  any  of  the  penal 
provisions  of  the  anti-trust  laws,  such  violation  shall  be  deemed  to  be 
also  that  of  the  individual  directors,  officers,  or  agents  of  such  cor- 
poration who  shall  have  authorized,  ordered,  or  done  any  of  the  acts 
constituting  in  whole  or  in  part  such  violation,  and  such  violation 
shall  be  deemed  a  misdemeanor,  and  upon  conviction  therefor  of  any 
such  director,  officer,  or  agent  he  shall  be  punished  by  a  fine  of  not 
exceeding  S5,000  or  by  imprisonment  for  not  exceeding  one  year,  or 
by  both,  in  the  discretion  of  the  court. 

Sec.  15.  The  several  district  courts  of  the  United  States  are  here- 
by invested  with  jurisdiction  to  prevent  and  restrain  violations  of  this 
Act,  and  it  shall  be  the  duty  of  the  several  district  attorneys  of  the 
United  States,  in  their  respective  districts,  under  the  direction  of 
the  Attorney-General,  to  institute  proceedings  in  equity  to  prevent 
and  restrain  such  violations.  Such  proceedings  may  be  by  way  of 
petition  setting  forth  the  case  and  praying  that  such  violation  shall 
be  enjoined  or  otherwise  prohibited.  When  the  parties  complained 
of  shall  have  been  duly  notified  of  such  petition,  the  court  shall  pro- 
ceed, as  soon  as  may  be,  to  the  hearing  and  determination  of  the  case; 
and  pending  such  petition,  and  before  final  decree,  the  court  may  at 
any  time  make  such  temporary  restraining  order  or  prohibition  as 


ANTI-TRUST   ACT   OF    1914  127 

shall  be  deemed  just  in  the  premises.  Whenever  it  shall  appear  to 
the  court  before  which  any  such  proceeding  may  be  pending  that  the 
ends  of  justice  require  that  other  parties  should  be  brought  before 
the  court,  the  court  may  cause  them  to  be  summoned  whether  they 
reside  in  the  district  in  which  the  court  is  held  or  not,  and  sub- 
poenas to  that  end  may  be  served  in  any  district  by  the  marshal 
thereof. 

Sec.  16.  That  any  person,  firm,  corporation,  or  association  shall 
be  entitled  to  sue  for  and  have  injunctive  relief,  in  any  court  of  the 
United  States  having  jurisdiction  over  the  parties,  against  threatened 
loss  or  damage  by  a  violation  of  the  anti-trust  laws,  including  sections 
two,  three,  seven  and  eight  of  this  Act,  when  and  under  the  same 
conditions  and  principles  as  injunctive  relief  against  threatened  con- 
duct that  will  cause  loss  or  damage  is  granted  by  courts  of  equity, 
under  the  rules  governing  such  proceedings,  and  upon  the  execution 
of  proper  bond  against  damages  for  an  injunction  improvidently 
granted  and  a  showing  that  the  danger  of  irreparable  loss  or  damage 
is  immediate,  a  preUminary  injunction  may  issue:  Provided,  That 
nothing  herein  contained  shall  be  construed  to  entitle  any  person, 
firm,  corporation,  or  association,  except  the  United  States,  to  bring 
suit  in  equity  for  injunctive  relief  against  any  common  carrier  sub- 
ject to  the  provisions  of  the  Act  to  regulate  commerce,  approved 
February  fourth,  eighteen  hundred  and  eighty-seven,  in  respect  of 
any  matter  subject  to  the  regulation,  supervision,  or  other  jurisdic- 
tion of  the  Interstate  Commerce  Commission. 

Sec.  17.  No  preliminary  injunction  shall  be  issued  without  notice 
to  the  opposite  party. 

No  temporary  restraining  order  shall  be  granted  without  notice  to 
the  opposite  party  unless  it  shall  clearly  appear  from  specific  facts 
shown  by  affidavit  or  by  the  verified  bill  that  immediate  and  irrepa- 
rable injury,  loss,  or  damage  will  result  to  the  applicant  before  notice 
can  be  served  and  a  hearing  had  thereon.  Every  such  temporary 
restraining  order  shall  be  indorsed  with  the  date  and  hour  of  issuance, 
shall  be  forthmth  filed  in  the  clerk's  office  and  entered  of  record, 
shall  define  the  injury  and  state  why  it  is  irreparable  and  why  the 
order  was  granted  without  notice,  and  shall  by  its  terms  expire 
within  such  time  after  entry,  not  to  exceed  tea  days,  as  the  court  or 
judge  may  fix,  unless  within  the  time  so  fixed  the  order  is  extended 
for  a  hke  period  for  good  cause  shown,  and  the  reasons  for  such 
extension  shall  be  entered  of  record.  In  case  a  temporary  restrain- 
ing order  shall  be  granted  without  notice  in  the  contingency  specified, 
the  matter  of  the  issuance  of  a  preUminary  injunction  shall  be  set 


128  APPENDIX 

down  for  a  hearing  at  the  earliest  possible  time  and  shall  take  prece- 
dence of  all  matters  except  older  matters  of  the  same  character;  and 
when  the  same  comes  up  for  hearing  the  party  obtaining  the  tem- 
porary restraining  order  shall  proceed  \vith  the  application  for  a 
preliminary  injunction,  and  if  he  does  not  do  so  the  court  shall 
dissolve  the  temporary  restraining  order.  Upon  two  days'  notice  to 
the  party  obtaining  such  temporary  restraining  order  the  opposite 
party  may  appear  and  move  the  dissolution  or  modification  of  the 
order,  and  in  that  event  the  court  or  judge  shall  proceed  to  hear  and 
determine  the  motion  as  expeditiously  as  the  ends  of  justice  may 
require. 

Section  two  hundred  and  sixty-three  of  an  Act  entitled  "  An  Act  to 
codify,  revise,  and  amend  the  laws  relating  to  the  judiciary,"  ap- 
proved March  third,  nineteen  hundred  and  eleven,  is  hereby 
repealed. 

Nothing  in  this  section  contained  shall  be  deemed  to  alter,  repeal, 
or  amend  section  two  hundred  and  sixty-six  of  an  Act  entitled  "  An 
Act  to  codify,  revise,  and  amend  the  laws  relating  to  the  judiciary," 
approved  March  third,  nineteen  hundred  and  eleven. 

Sec.  18.  Except  as  otherwise  provided  in  section  16  of  this  Act, 
no  restraining  order  or  interlocutory  order  of  injunction  shall  issue, 
except  upon  the  giving  of  security  by  the  applicant  in  such  sum  as 
the  court  or  judge  may  deem  proper,  conditioned  upon  the  payment 
of  such  costs  and  damages  as  may  be  incurred  or  suffered  by  anj'^ 
party  who  may  be  found  to  have  been  wrongfully  enjoined  or  re- 
strained thereby. 

Sec.  19.  Every  order  of  injunction  or  restraining  order  shall  set 
forth  the  reasons  for  the  issuance  of  the  same,  shall  be  specific  in 
terms,  and  shall  describe  in  reasonable  detail,  and  not  by  reference 
to  the  bill  of  complaint  or  other  document,  the  act  or  acts  sought  to 
be  restrained,  and  shall  be  binding  only  upon  the  parties  to  the  suit, 
their  officers,  agents,  servants,  employees,  and  attornej^s,  or  those  in 
active  concert  or  participating  with  them,  and  who  shall,  by  personal 
service  or  otherwise,  have  received  actual  notice  of  the  same. 

Sec.  20.  No  restraining  order  or  injunction  shall  be  granted  by 
any  court  of  the  United  States,  or  a  judge  or  the  judges  thereof,  in 
any  case  between  an  employer  and  employees,  or  between  employers 
and  employees,  or  between  employees,  or  between  persons  employed 
and  persons  seeking  employment,  involving,  or  growing  out  of,  a  dis- 
pute concerning  terms  or  conditions  of  employment,  unless  necessary 
to  prevent  irreparable  injury  to  property,  or  to  a  property  right,  of 
the  party  making  the  application,  for  which  injury  there  is  no  ade- 


ANTI-TRUST   ACT   OF    1914  129 

quate  remedy  at  law,  and  such  property  or  property  right  must  be 
described  with  particularity  in  the  application,  which  must  be  in 
writing  and  sworn  to  by  the  applicant  or  by  his  agent  or  attorney. 

And  no  such  restraining  order  or  injunction  shall  prohibit  any  per- 
son or  persons,  whether  singly  or  in  concert,  from  terminating  any 
relation  of  employment,  or  from  ceasing  to  perform  any  work  or 
labor,  or  from  recommending,  advising,  or  persuading  others  by 
peaceful  means  so  to  do;  or  from  attending  at  any  place  where  any 
such  person  or  persons  may  lawfully  be,  for  the  purpose  of  peacefully 
obtaining  or  communicating  information,  or  from  peacefully  per- 
suading any  person  to  work  or  to  abstain  from  working;  or  from 
ceasing  to  patronize  or  to  employ  any  party  to  such  dispute,  or  from 
recommending,  advising,  or  persuading  others  by  peaceful,  and  law- 
ful means  so  to  do ;  or  from  paying  or  giving  to,  or  withholding  from, 
any  person  engaged  in  such  dispute,  any  strike  benefits  or  other 
moneys  or  things  of  value;  or  from  peaceably  assembling  in  a  lawful 
manner,  and  for  lawful  purposes;  or  from  doing  any  act  or  thing 
which  might  lawfully  be  done  in  the  absence  of  such  dispute  by  any 
party  thereto;  nor  shall  any  of  the  acts  specified  in  this  paragraph 
be  considered  or  held  to  be  violations  of  any  law  of  the  United 
States. 

Sec.  21.  Any  person  who  shall  willfully  disobey  any  lawful  writ, 
process,  order,  rule,  decree,  or  command  of  any  district  court  of  the 
United  States  or  any  court  of  the  District  of  Columbia  by  doing  any 
act  or  thing  therein,  or  thereby  forbidden  to  be  done  by  him,  if  the 
act  or  thing  so  done  by  him  be  of  such  character  as  to  constitute  also 
a  criminal  offense  under  any  statute  of  the  United  States,  or  under 
the  laws  of  any  State  in  which  the  act  was  committed,  shall  be  pro- 
ceeded against  for  his  said  contempt  as  hereinafter  provided. 

Sec.  22.  Whenever  it  shall  be  made  to  appear  to  any  district 
court  or  judge  thereof,  or  to  any  judge  therein  sitting,  by  the  return 
of  a  proper  officer  on  lawful  process,  or  upon  the  affidavit  of  some 
credible  person,  or  by  information  filed  by  any  district  attorney,  that 
there  is  reasonable  ground  to  believe  that  any  person  has  been  guilty 
of  such  contempt,  the  court  or  judge  thereof,  or  any  judge  therein 
sitting,  may  issue  a  rule  requiring  the  said  person  so  charged  to  show 
cause  upon  a  day  certain  why  he  should  not  be  punished  therefor, 
which  rule,  together  with  a  copy  of  the  affidavit  or  information, 
shall  be  served  upon  the  person  charged,  with  sufficient  promptness 
to  enable  him  to  prepare  for  and  make  return  to  the  order  at  the 
time  fixed  therein.  If  upon  or  by  such  return,  in  the  judgment  of  the 
court,  the  alleged  contempt  be  not  sufficiently  purged,  a  trial  shall 


130  APPENDIX 

be  directed  at  a  time  and  place  fixed  by  the  court :  Provided,  however, 
That  if  the  accused,  being  a  natural  person,  fail  or  refuse  to  make 
return  to  the  rule  to  show  cause,  an  attachment  may  issue  against 
his  person  to  compel  an  answer,  and  in  case  of  his  continued  failure 
or  refusal,  or  if  for  any  reason  it  be  impracticable  to  dispose  of  the 
matter  on  the  return  day,  he  may  be  required  to  give  reasonable 
bail  for  his  attendance  at  the  trial  and  his  submission  to  the  final 
judgment  of  the  court.  Where  the  accused  is  a  bodj'^  corporate,  an 
attachment  for  the  sequestration  of  its  property  may  be  issued  upon 
like  refusal  or  failure  to  answer. 

In  all  cases  within  the  purview  of  this  Act  such  trial  may  be  by  the 
court,  or,  upon  demand  of  the  accused,  by  a  jury;  in  which  latter 
event  the  court  may  impanel  a  jury  from  the  jurors  then  in  attend- 
ance, or  the  court  or  the  judge  thereof  in  chambers  may  cause  a 
sufficient  number  of  jurors  to  be  selected  and  summoned,  as  provided 
by  law,  to  attend  at  the  time  and  place  of  trial,  at  which  time  a  jury 
shall  be  selected  and  impaneled  as  upon  a  trial  for  misdemeanor; 
and  such  trial  shall  conform,  as  near  as  maj'^  be,  to  the  practice  in 
criminal  cases  prosecuted  by  indictment  or  upon  information. 

If  the  accused  be  found  guilty,  judgment  shall  be  entered  accord- 
ingly, prescribing  the  punisliment,  either  by  fine  or  imprisonment, 
or  both,  in  the  discretion  of  the  court.  Such  fine  shall  be  paid  to  the 
United  States  or  to  the  complainant  or  other  party  injured  by  the  act 
constituting  the  contempt,  or  may,  where  more  than  one  is  so  dam- 
aged, be  divided  or  apportioned  among  them  as  the  court  may  direct, 
but  in  no  case  shall  the  fine  to  be  paid  to  the  United  States  exceed,  in 
case  the  accused  is  a  natural  person,  the  sum  of  $1,000,  nor  shall  such 
imprisonment  exceed  the  term  of  six  months :  Provided,  That  in  any 
case  the  court  or  a  judge  thereof  may,  for  good  cause  shown,  by 
affidavit  or  proof  taken  in  open  court  or  before  such  judge  and  filed 
with  the  papers  in  the  case,  dispense  with  the  rule  to  show  cause,  and 
may  issue  an  attachment  for  the  arrest  of  the  person  charged  with 
contempt;  in  which  event  such  person,  when  arrested,  shall  be 
brought  before  such  court  or  a  judge  thereof  without  unnecessary 
delay  and  shall  be  admitted  to  bail  in  a  reasonable  penalty  for  his 
appearance  to  answer  to  the  charge  or  for  trial  for  the  contempt ;  and 
thereafter  the  proceedings  shall  be  the  same  as  provided  herein  in 
case  the  rule  had  issued  in  the  first  instance. 

Sec.  23.  The  evidence  taken  upon  the  trial  of  any  persons  so 
accused  may  be  preserved  by  bill  of  exceptions,  and  any  judgment  of 
conviction  may  be  reviewed  upon  writ  of  error  in  all  respects  as  now 
provided  by  law  in  criminal  cases,  and  may  be  affirmed,  reversed,  or 


TRADE   COMMISSION   ACT  131 

modified  as  justice  may  require.  Upon  the  granting  of  such  writ  of 
error,  execution  of  judgment  shall  be  stayed,  and  the  accused,  if 
thereby  sentenced  to  imprisonment,  shall  be  admitted  to  bail  in  such 
reasonable  sum  as  may  be  required  by  the  court,  or  by  any  justice,  or 
any  judge  of  any  district  court  of  the  United  States  or  any  court  of 
the  District  of  Columbia. 

Sec.  24.  Nothing  herein  contained  shall  be  construed  to  relate  to 
contempts  committed  in  the  presence  of  the  court,  or  so  near  thereto 
as  to  obstruct  the  administration  of  justice,  nor  to  contempts  com- 
mitted in  disobedience  of  any  lawful  writ,  process,  order,  rule, 
decree,  or  command  entered  in  any  suit  or  action  brought  or  prose- 
cuted in  the  name  of,  or  on  behalf  of,  the  United  States,  but  the 
same,  and  all  other  cases  of  contempt  not  specifically  embraced 
within  section  twenty-one  of  this  Act,  may  be  punished  in  con- 
formity to  the  usages  at  law  and  in  equity  now  prevailing. 

Sec.  25.  No  proceeding  for  contempt  shall  be  instituted  against 
any  person  unless  begun  within  one  year  from  the  date  of  the  act 
complained  of;  nor  shall  any  such  proceeding  be  a  bar  to  any  crimi- 
nal prosecution  for  the  same  act  or  acts;  but  nothing  herein  con- 
tained shall  affect  any  proceedings  in  contempt  pending  at  the  time 
of  the  passage  of  this  Act. 

Sec.  26.  If  any  clause,  sentence,  paragraph,  or  part  of  this  Act 
shall,  for  any  reason,  be  adjudged  by  any  court  of  competent  jurisdic- 
tion to  be  invaUd,  such  judgment  shall  not  affect,  impair,  or  invali- 
date the  remainder  thereof,  but  shall  be  confined  in  its  operation  to 
the  clause,  sentence,  paragraph,  or  part  thereof  directly  involved  in 
the  controversy  in  which  such  judgment  shall  have  been  rendered. 


III.   Trade  Commission  Act 

Approved  September  S6,  1914,  Chap.  i03 

An  Act  to  create  a  Federal  Trade  Commission, 
to  define  its  powers  and  duties,  and  for  other  purposes 

Sec.  1.  A  commission  is  hereby  created  and  estabhshed,  to  be 
known  as  the  Federal  Trade  Commission  (hereinafter  referred  to  as 
the  commission),  wliich  shall  be  composed  of  five  commissioners, 
who  shall  be  appointed  by  the  President,  by  and  with  the  advice  and 
consent  of  the  Senate.  Not  more  than  three  of  the  commissioners 
shall  be  members  of  the  same  political  party.  The  first  commis- 
sioners appointed  shall  continue  in  office  for  terms  of  three,  four, 
five,  six,  and  seven  years,  respectively,  from  the  date  of  the  taking 


132  APPENDIX 

effect  of  this  Act,  the  term  of  each  to  be  designated  by  the  President, 
but  their  successors  shall  be  appointed  for  terms  of  seven  years, 
except  that  any  person  chosen  to  fill  a  vacancy  shall  be  appointed 
only  for  the  unexpired  term  of  the  commissioner  whom  he  shall 
succeed.  The  commission  shall  choose  a  chairman  from  its  own 
membership.  No  commissioner  shall  engage  in  any  other  business, 
vocation,  or  employment.  Any  commissioner  may  be  removed  by 
the  President  for  inefficiency,  neglect  of  duty,  or  malfeasance  in 
ofl&ce.  A  vacancy  in  the  commission  shall  not  impair  the  right  of 
the  remaining  commissioners  to  exercise  all  the  powers  of  the  com- 
mission. 

The  commission  shall  have  an  official  seal,  which  shall  be  judicially 
noticed. 

Sec.  2.  Each  commissioner  shall  receive  a  salary  of  $10,000  a 
year,  payable  in  the  same  manner  as  the  salaries  of  the  judges  of  the 
courts  of  the  United  States.  The  commission  shall  appoint  a  secre- 
tary, who  shall  receive  a  salary  of  $5,000  a  year,  payable  in  hke  man- 
ner, and  it  shall  have  authority  to  employ  and  fix  the  compensation 
of  such  attorneys,  special  experts,  examiners,  clerks,  and  other 
employees  as  it  may  from  time  to  time  find  necessary  for  the 
proper  performance  of  its  duties  and  as  may  be  from  time  to  time 
appropriated  for  by  Congress. 

With  the  exception  of  the  secretary,  a  clerk  to  each  conmiissioner, 
the  attorneys,  and  such  special  experts  and  examiners  as  the  com- 
mission may  from  time  to  time  find  necessary  for  the  conduct  of  its 
work,  all  employees  of  the  commission  shall  be  a  part  of  the  classified 
civil  service,  and  shall  enter  the  service  under  such  rules  and  regula- 
tions as  may  be  prescribed  by  the  commission  and  by  the  Civil  Ser- 
vice Commission. 

All  of  the  expenses  of  the  commission,  including  all  necessary 
expenses  for  transportation  incurred  by  the  commissioners  or  by 
their  employees  under  their  orders,  in  making  any  investigation,  or 
upon  official  business  in  any  other  places  than  in  the  city  of  Wash- 
ington, shall  be  allowed  and  paid  on  the  presentation  of  itemized 
vouchers  therefor  approved  by  the  commission. 

Until  otherwise  provided  by  law,  the  commission  may  rent  suitable 
offices  for  its  use. 

The  Auditor  for  the  State  and  Other  Departments  shall  receive 
and  examine  all  accounts  of  expenditures  of  the  commission. 

Sec.  3.  Upon  the  organization  of  the  commission  and  election  of 
its  chairman,  the  Bureau  of  Corporations  and  the  offices  of  Com- 
missioner and  Deputy  Commissioner  of  Corporations  shall  cease  to 


TRADE   COMMISSION   ACT  133 

exist;  and  all  pending  investigations  and  proceedings  of  the  Bureau 
of  Corporations  shall  be  continued  by  the  commission. 

AH  clerks  and  employees  of  the  said  bureau  shall  be  transferred  to 
and  become  clerks  and  employees  of  the  commission  at  their  present 
•  grades  and  salaries.  All  records,  papers,  and  property  of  the  said 
bureau  shall  become  records,  papers,  and  property  of  the  commis- 
sion, and  all  unexpended  funds  and  appropriations  for  the  use  and 
maintenance  of  the  said  bureau,  including  any  allotment  already 
made  to  it  by  the  Secretary  of  Commerce  from  the  contingent  appro- 
priation for  the  Department  of  Commerce  for  the  fiscal  year  nineteen 
hundred  and  fifteen,  or  from  the  departmental  printing  fund  for  the 
fiscal  year  nineteen  hundred  and  fifteen,  shall  become  funds  and  ap- 
propriations available  to  be  expended  by  the  commission  in  the 
exercise  of  the  powers,  authority,  and  duties  conferred  on  it  by  this 
Act. 

The  principal  office  of  the  commission  shall  be  in  the  city  of  Wash- 
ington, but  it  may  meet  and  exercise  all  its  powers  at  any  other 
place.  The  commission  may,  by  one  or  more  of  its  members,  or  by 
such  examiners  as  it  may  designate,  prosecute  any  inquiry  necessary 
to  its  duties  in  any  part  of  the  United  States. 

Sec.  4.  The  words  defined  in  this  section  shall  have  the  following 
meaning  when  found  in  this  Act,  to  wit: 

"  Commerce  "  means  commerce  among  the  several  States  or  with 
foreign  nations,  or  in  any  Territory  of  the  United  States  or  in  the 
District  of  Columbia,  or  between  any  such  Territory  and  another, 
or  between  any  such  Territory  and  any  State  or  foreign  nation,  or 
between  the  District  of  Columbia  and  any  State  or  Territory  or 
foreign  nation. 

"  Corporation  "  means  any  company  or  association  incorporated 
or  unincorporated,  which  is  organized  to  carrj^  on  business  for  profit 
and  has  shares  of  capital  or  capital  stock,  and  any  company  or  asso- 
ciation, incorporated  or  unincorporated,  without  shares  of  capital  or 
capital  stock,  except  partnerships,  which  is  organized  to  carry  on 
business  for  its  own  profit  or  that  of  its  members. 

"  Documentary  evidence  "  means  all  documents,  papers,  and  cor- 
respondence in  existence  at  and  after  the  passage  of  this  Act. 

"  Acts  to  regulate  commerce  "  means  the  Act  entitled  "  An  Act  to 
regulate  commerce,"  approved  February  fourteenth,  eighteen  hun- 
dred and  eighty-seven,  and  all  Acts  amendatory  thereof  and  supple- 
mentary thereto. 

"  Anti-trust  acts  "  means  the  Act  entitled  "  An  Act  to  protect 
trade  and  commerce  against  unlawful  restraints  and  monopolies," 


134  APPENDIX 

approved  July  second,  eighteen  hundred  and  ninety;  also  the  sec- 
tions seventy-three  to  seventy-seven,  inclusive,  of  an  Act  entitled 
"  An  Act  to  reduce  taxation,  to  provide  revenue  for  the  Government, 
and  for  other  purposes,"  approved  August  twenty-seventh,  eighteen 
hundred  and  ninety-four;  and  also  the  Act  entitled  "  An  Act  to 
amend  sections  seventy-three  and  seventy-six  of  the  Act  of  August 
twenty-seventh,  eighteen  hundred  and  ninety-four,  entitled  '  An  Act 
to  reduce  taxation,  to  provide  revenue  for  the  Government,  and  for 
other  purposes,'  "  approved  February  twelfth,  nineteen  hundred 
and  thirteen. 

Sec.  5.  Unfair  methods  of  competition  in  commerce  are  hereby 
declared  unlawful. 

The  commission  is  hereby  empowered  and  directed  to  prevent 
persons,  partnerships,  or  corporations,  except  banks,  and  common 
carriers  subject  to  the  Acts  to  regulate  commerce,  from  using  unfair 
methods  of  competition  in  commerce. 

Whenever  the  commission  shall  have  reason  to  believe  that  any 
such  person,  partnership,  or  corporation  has  been  or  is  using  any 
unfair  method  of  competition  in  commerce,  and  if  it  shall  appear  to 
the  commission  that  a  proceeding  by  it  in  respect  thereof  would  be 
to  the  interest  of  the  public,  it  shall  issue  and  serve  upon  such  person, 
partnership,  or  corporation  a  complaint  stating  its  charges  in  that 
respect,  and  containing  a  notice  of  a  hearing  upon  a  day  and  at  a 
place  therein  fixed  at  least  thirty  days  after  the  service  of  said  com- 
plaint. The  person,  partnership,  or  corporation  so  complained  of 
shall  have  the  right  to  appear  at  the  place  and  time  so  fixed  and  show 
cause  why  an  order  should  not  be  entered  by  the  commission  requir- 
ing such  person,  partnership,  or  corporation  to  cease  and  desist 
from  the  violation  of  the  law  so  charged  in  said  complaint.  Any 
person,  partnership,  or  corporation  may  make  application,  and  upon 
good  cause  shown  may  be  allowed  bj'-  the  commission,  to  intervene 
and  appear  in  said  proceeding  by  counsel  or  in  person.  The  testi- 
mony in  any  such  proceeding  shall  be  reduced  to  writing  and  filed  in 
the  office  of  the  commission.  If  upon  such  hearing  the  commission 
shall  be  of  the  opinion  that  the  method  of  competition  in  question  is 
prohibited  by  this  Act,  it  shall  make  a  report  in  writing  in  which  it 
shall  state  its  findings  as  to  the  facts,  and  shall  issue  and  cause  to  be 
served  on  such  person,  partnership,  or  corporation  an  order  requir- 
ing such  person,  partnership,  or  corporation  to  cease  and  desist  from 
using  such  method  of  competition.  Until  a  transcript  of  the  record 
in  such  hearing  shall  have  been  filed  in  a  circuit  court  of  appeals  of 
the  United  States,  as  hereinafter  provided,  the  commission  may  at 


TRADE  COMMISSION   ACT  135 

any  time,  upon  such  notice  and  in  such  manner  as  it  shall  deem 
proper,  modify  or  set  aside,  in  whole  or  in  part,  any  report  or  any 
order  made  or  issued  by  it  under  this  section. 

If  such  person,  partnership,  or  corporation  fails  or  neglects  to  obey 
such  order  of  the  commission  while  the  same  is  in  effect,  the  commis- 
sion may  apply  to  the  circuit  court  of  appeals  of  the  United  States, 
within  any  circuit  where  the  method  of  competition  in  question  was 
used  or  where  such  person,  partnership,  or  corporation  resides  or 
carries  on  business,  for  the  enforcement  of  its  order,  and  shall  certify 
and  file  with  its  application  a  transcript  of  the  entire  record  in  the 
proceeding,  including  all  the  testimony  taken  and  the  report  and 
order  of  the  commission.  Upon  such  filing  of  the  application  and 
transcript  the  court  shall  cause  notice  thereof  to  be  served  upon  such 
person,  partnership,  or  corporation  and  thereupon  shall  have 
jurisdiction  of  the  proceeding  and  of  the  question  determined  therein, 
and  shall  have  power  to  make  and  enter  upon  the  pleadings,  testi- 
mony, and  proceedings  set  forth  in  such  transcript  a  decree  affirming, 
modifying,  or  setting  aside  the  order  of  the  commission.  The  find- 
ings of  the  commission  as  to  the  facts,  if  supported  by  testimonj'', 
shall  be  conclusive.  If  either  party  shall  apply  to  the  court  for  leave 
to  adduce  additional  evidence,  and  shall  show  to  the  satisfaction  of 
the  court  that  such  additional  evidence  is  material  and  that  there 
were  reasonable  grounds  for  the  failure  to  adduce  such  evidence  in 
the  proceeding  before  the  commission,  the  court  may  order  such 
additional  evidence  to  be  taken  before  the  commission  and  to  be 
adduced  upon  the  hearing  in  such  mamier  and  upon  such  terms  and 
conditions  as  to  the  court  may  seem  proper.  The  commission  may 
modify  its  findings  as  to  the  facts,  or  make  new  findings,  by  reason 
of  the  additional  evidence  so  taken,  and  it  shall  file  such  modified  or 
new  findings,  which,  if  supported  by  testimony,  shall  be  conclusive, 
and  its  recommendation,  if  any,  for  the  modification  or  setting  aside 
of  its  original  order,  with  the  return  of  such  additional  evidence. 
The  judgment  and  decree  of  the  court  shall  be  final,  except  that  the 
same  shall  be  subject  to  review  bj^  the  Supreme  Court  upon  certiorari 
as  provided  in  section  two  hundred  and  forty  of  the  Judicial  Code. 

Any  party  required  by  such  order  of  the  commission  to  cease  and 
desist  from  using  such  method  of  competition  may  obtain  a  review 
of  such  order  in  said  circuit  court  of  appeals  by  filing  in  the  court  a 
written  petition  praying  that  the  order  of  the  commission  be  set 
aside.  A  copy  of  such  petition  shall  be  forthwith  served  upon  the 
commission,  and  thereupon  the  commission  forthwith  shall  certify 
and  file  in  the  court  a  transcript  of  the  record  as  hereinbefore  pro- 


136  APPENDIX 

vided.  Upon  the  filing  of  the  transcript  the  court  shall  have  the 
same  jurisdiction  to  affirm,  set  aside,  or  modif}'-  the  order  of  the  com- 
mission as  in  the  case  of  an  application  by  the  commission  for  the 
enforcement  of  its  order,  and  the  findings  of  the  commission  as  to  the 
facts,  if  supported  b_v  testimony,  shall  in  like  manner  be  conclusive. 

The  jurisdiction  of  the  circuit  court  of  appeals  of  the  United  States 
to  enforce,  set  aside,  or  modify  orders  of  the  commission  shall  be 
exclusive. 

Such  proceedings  in  the  circuit  court  of  appeals  shall  be  given 
precedence  over  other  cases  pending  therein,  and  shall  be  in  every 
way  expedited.  No  order  of  the  commission  or  judgment  of  the 
court  to  enforce  the  same  shall  in  any  wise  relieve  or  absolve  an,y 
person,  partnership,  or  corporation  from  any  liability  under  the  anti- 
trust acts. 

Complaints,  orders,  and  other  processes  of  the  commission  under 
this  section  may  be  served  by  any  one  duly  authorized  by  the  com- 
mission, either  (a)  by  delivering  a  copy  thereof  to  the  person  to  be 
served,  or  to  a  member  of  the  partnership  to  be  served,  or  to  the 
president,  secretary,  or  other  executive  officer  or  a  director  of  the  cor- 
poration to  be  served;  or  (h)  by  leaving  a  copy  thereof  at  the  prin- 
cipal office  or  place  of  business  of  such  person,  partnership,  or 
corporation;  or  (c)  by  registering  and  mailing  a  copy  thereof 
addressed  to  such  person,  partnership,  or  corporation  at  his  or  its 
principal  office  or  place  of  business.  The  verified  return  by  the 
person  so  serving  said  complaint,  order,  or  other  process  setting 
forth  the  manner  of  said  service  shall  be  proof  of  the  same,  and  the 
return  post-office  receipt  for  said  complaint,  order,  or  other  process 
registered  and  mailed  as  aforesaid  shall  be  proof  of  the  service  of 
the  same. 

Sec.  6.   The  commission  shall  also  have  power  — 

(a)  To  gather  and  compile  information  concerning,  and  to  investi- 
gate from  time  to  time  the  organization,  business,  conduct,  practices, 
and  management  of  any  corporation  engaged  in  commerce,  excepting 
banks  and  common  carriers  subject  to  the  Act  to  regulate  commerce, 
and  its  relation  to  other  corporations  and  to  individuals,  associations, 
and  partnerships. 

(6)  To  require,  by  general  or  special  orders,  corporations  engaged 
in  commerce,  excepting  banks,  and  common  carriers  subject  to  the 
Act  to  regulate  commerce,  or  any  class  of  them,  or  any  of  them, 
respectively,  to  file  with  the  commission  in  such  form  as  the  commis- 
sion may  prescribe  annual  or  special,  or  both  annual  and  special, 
reports  or  answers  in  writing  to  specific  questions,  furnishing  to  the 


TRADE   COMMISSION   ACT  137 

commission  such  information  as  it  may  require  as  to  the  organiza- 
tion, business,  conduct,  practices,  management,  and  relation  to 
other  corporations,  partnerships,  and  individuals  of  the  respective 
corporations  filing  such  reports  or  answers  in  writing.  Such  reports 
and  answers  shall  be  made  under  oath,  or  otherwise,  as  the  commis- 
sion may  prescribe,  and  shall  be  filed  with  the  cormnission  within 
such  reasonable  period  as  the  commission  may  prescribe,  unless 
additional  time  be  granted  in  any  case  by  the  commission. 

(c)  Whenever  a  final  decree  has  been  entered  against  any  defend- 
ant corporation  in  any  suit  brought  by  the  United  States  to  prevent 
and  restrain  any  violation  of  the  anti-trust  Acts,  to  make  investiga- 
tion, upon  its  own  initiative,  of  the  manner  in  which  the  decree  has 
been  or  is  being  carried  out,  and  upon  the  apphcation  of  the  Attorney- 
General  it  shall  be  its  duty  to  make  such  investigation.  It  shall 
transmit  to  the  Attorney-General  a  report  embodying  its  findings 
and  recommendations  as  a  result  of  any  such  investigation,  and  the 
report  shall  be  made  pubhc  in  the  discretion  of  the  commission. 

(d)  Upon  the  direction  of  the  President  or  either  House  of  Con- 
gress to  investigate  and  report  the  facts  relating  to  any  alleged 
violations  of  the  anti-trust  Acts  by  any  corporation. 

(e)  Upon  the  application  of  the  Attorney-General  to  investigate 
and  make  recommendations  for  the  readjustment  of  the  business  of 
any  corporation  alleged  to  be  violating  the  anti-trust  Acts  in  order 
that  the  corporation  may  thereafter  maintain  its  organization, 
management,  and  conduct  of  business  in  accordance  with  law. 

(/)  To  make  public  from  time  to  time  such  portions  of  the  infor- 
mation obtained  by  it  hereunder,  except  trade  secrets  and  names  of 
customers,  as  it  shall  deem  expedient  in  the  pubhc  interest;  and  to 
make  annual  and  special  reports  to  the  Congress  and  to  submit 
therewith  recommendations  for  additional  legislation;  and  to  pro- 
vide for  the  publication  of  its  reports  and  decisions  in  such  form  and 
manner  as  may  be  best  adapted  for  pubhc  information  and  use. 

(g)  From  time  to  time  to  classify  corporations  and  to  make  rules 
and  regulations  for  the  purpose  of  carrying  out  the  provisions  of  this 
Act. 

(h)  To  investigate,  from  time  to  time,  trade  conditions  in  and 
with  foreign  countries  where  associations,  combinations,  or  practices 
of  manufacturers,  merchants,  or  traders,  or  other  conditions,  may 
affect  the  foreign  trade  of  the  United  States,  and  to  report  to  Con- 
gress thereon,  with  such  recommendations  as  it  deems  advisable. 

Sec.  7.  In  any  suit  in  equity  brought  by  or  under  the  direction 
of  the  Attorney-General  as  provided  in  the  anti-trust  Acts,  the  court 


138  APPENDIX 

may,  upon  the  conclusion  of  the  testimony  therein,  if  it  shall  be  then 
of  opinion  that  the  complainant  is  entitled  to  reUef,  refer  said  suit 
to  the  commission,  as  a  master  in  chancery,  to  ascertain  and  report 
an  appropriate  form  of  decree  therein.  The  commission  shall  pro- 
ceed upon  such  notice  to  the  parties  and  under  such  rules  of  proced- 
ure as  the  court  maj'  prescribe,  and  upon  the  coming  in  of  such  report 
such  exceptions  may  be  filed  and  such  proceedings  had  in  relation 
thereto  as  upon  the  report  of  a  master  in  other  equity  causes,  but  the 
court  may  adopt  or  reject  such  report,  in  whole  or  in  part,  and  enter 
such  decree  as  the  nature  of  the  case  may  in  its  judgment  require. 

Sec.  8.  The  several  departments  and  bureaus  of  the  Govern- 
ment when  directed  by  the  President  shall  furnish  the  commission, 
upon  its  request,  all  records,  papers,  and  information  in  their  posses- 
sion relating  to  any  corporation  subject  to  any  of  the  provisions  of 
this  Act,  and  shall  detail  from  time  to  time  such  officials  and  em- 
ployees to  the  commission  as  he  may  direct. 

Sec.  9.  For  the  purposes  of  this  Act  the  commission,  or  its  duly 
authorized  agent  or  agents,  shall  at  all  reasonable  times  have  access 
to,  for  the  purpose  of  examination,  and  the  right  to  copy  any  docu- 
mentary evidence  of  any  corporation  being  investigated  or  pro- 
ceeded against;  and  the  commission  shall  have  power  to  require  by 
subpoena  the  attendance  and  testimony  of  witnesses  and  the  produc- 
tion of  all  such  documentaiy  evidence  relating  to  any  matter  under 
investigation.  Any  member  of  the  commission  may  sign  subpoenas, 
and  members  and  examiners  of  the  commission  may  administer 
oaths  and  affirmations,  examine  witnesses,  and  receive  evidence. 

Such  attendance  of  witnesses,  and  the  production  of  such  docu- 
mentary evidence,  may  be  required  from  any  place  in  the  United 
States,  at  any  designated  place  of  hearing.  And  in  case  of  disobe- 
dience to  a  subpoena  the  commission  may  invoke  the  aid  of  any  court 
of  the  United  States  in  requiring  the  attendance  and  testimony  of 
witnesses  and  the  production  of  documentary  evidence. 

Any  of  the  district  courts  of  the  United  States  within  the  juris- 
diction of  which  such  inquiry  is  carried  on  may,  in  case  of  contu- 
macy or  refusal  to  obey  a  subpoena  issued  to  any  corporation  or  other 
person,  issue  an  order  requiring  such  corporation  or  other  person  to 
appear  before  the  commission,  or  to  produce  documentary  evidence 
if  so  ordered,  or  to  give  evidence  touching  the  matter  in  question; 
and  any  failure  to  obey  such  order  of  the  court  may  be  punished  by 
such  court  as  a  contempt  thereof. 

Upon  the  appUcation  of  the  Attorney-General  of  the  United  States, 
at  the  request  of  the  commission,  the  district  courts  of  the  United 


TRADE   COMMISSION   ACT  139 

States  shall  have  jurisdiction  to  issue  writs  of  mandamus  command- 
ing any  person  or  corporation  to  complj'-  with  the  provisions  of  this 
Act  or  any  order  of  the  commission  made  in  pursuance  thereof. 

The  commission  may  order  testimony  to  be  taken  by  deposition 
in  any  proceeding  or  investigation  pending  under  this  Act  at  any 
stage  of  such  proceeding  or  investigation.  Such  depositions  may  be 
taken  before  any  person  designated  by  the  commission  and  having 
power  to  administer  oaths.  Such  testimony  shall  be  reduced  to 
WTiting  by  the  person  taking  the  deposition,  or  under  his  direction, 
and  shall  then  be  subscribed  by  the  deponent.  Any  person  may  be 
compelled  to  appear  and  depose  and  to  produce  documentary  evi- 
dence in  the  same  manner  as  witnesses  may  be  compelled  to  appear 
and  testify  and  produce  documentary  evidence  before  the  commis- 
sion as  hereinbefore  provided. 

Witnesses  summoned  before  the  commission  shall  be  paid  the 
same  fees  and  mileage  that  are  paid  witnesses  in  the  courts  of 
the  United  States,  and  witnesses  whose  depositions  are  taken  and  the 
persons  taking  the  same  shall  severally  be  entitled  to  the  same  fees  as 
are  paid  for  like  services  in  the  courts  of  the  United  States. 

No  person  shall  be  e.xcused  from  attending  and  testifying  or  from 
producing  documentary  evidence  before  the  commission  or  in  obedi- 
ence to  the  subpoena  of  the  commission  on  the  ground  or  for  the 
reason  that  the  testimony  or  e\idence,  documentary  or  otherwise, 
required  of  liim  ma}'^  tend  to  criminate  him  or  subject  him  to  a 
penalty  or  forfeiture.  But  no  natural  person  shall  be  prosecuted  or 
subjected  to  any  penalty  or  forfeiture  for  or  on  account  of  any  trans- 
action, matter,  or  thing  concerning  which  he  may  testify,  or  produce 
evidence,  documentary  or  otherwise,  before  the  commission  in  obedi- 
ence to  a  subpoena  issued  by  it:  Provided,  That  no  natural  person 
so  testifying  shall  be  e.xempt  from  prosecution  and  punishment  for 
perjury  committed  in  so  testifying. 

Sec.  10.  Any  person  who  shall  neglect  or  refuse  to  attend  and 
testify,  or  to  answer  any  lawful  inquiry,  or  to  produce  documentary 
evidence,  if  in  his  power  to  do  so,  in  obedience  to  the  subpoena  or 
lawful  requirement  of  the  commission,  shall  be  guilty  of  an  offense 
and  upon  conviction  thereof  by  a  court  of  competent  jurisdiction 
shaU  be  punished  by  a  fine  of  not  less  than  SI, 000  nor  more  than 
$5,000,  or  by  imprisonment  for  not  more  than  one  year,  or  by  both 
such  fine  and  imprisonment. 

Any  person  who  shall  willfully  make,  or  cause  to  be  made,  any  false 
entry  or  statement  of  fact  in  any  report  required  to  be  made  under 
this  Act,  or  who  shall  willfully  make,  or  cause  to  be  made,  any  false 


140  APPENDIX 

entry  in  any  account,  record,  or  memorandum  kept  by  any  corpora- 
tion subject  to  this  Act,  or  who  shall  willfully  neglect  or  fail  to  make, 
or  to  cause  to  be  made,  full,  true,  and  correct  entries  in  such  accounts, 
records,  or  memoranda  of  all  facts  and  transactions  appertaining  to 
the  business  of  such  corporation,  or  who  shall  willfully  remove  out  of 
the  jurisdiction  of  the  United  States,  or  willfully  mutilate,  alter,  or 
by  any  other  means  falsify  any  documentary  evidence  of  such  cor- 
poration, or  who  shall  willfully  refuse  to  submit  to  the  commission  or 
to  any  of  its  authorized  agents,  for  the  purpose  of  inspection  and 
taking  copies,  any  documentary  evidence  of  such  corporation  in  his 
possession  or  within  his  control,  shall  be  deemed  guilty  of  an  offense 
against  the  United  States,  and  shall  be  subject,  upon  conviction  in 
any  court  of  the  United  States  of  competent  jurisdiction,  to  a  fine  of 
not  less  than  $1,000  nor  more  than  $5,000,  or  to  imprisonment  for  a 
term  of  not  more  than  three  years,  or  to  both  such  fine  and  imprison- 
ment. 

If  any  corporation  required  by  this  Act  to  file  any  annual  or  special 
report  shall  fail  so  to  do  within  the  time  fixed  by  the  commission  for 
filing  the  same,  and  such  failure  shall  continue  for  thirty  days  after 
notice  of  such  default,  the  corporation  shall  forfeit  to  the  United 
States  the  sum  of  1100  for  each  and  every  day  of  the  continuance  of 
such  failure,  which  forfeiture  shall  be  payable  into  the  Treasury  of 
the  United  States,  and  shall  be  recoverable  in  a  civil  suit  in  the  name 
of  the  United  States  brought  in  the  district  where  the  corporation 
has  its  principal  office  or  in  any  district  in  which  it  shall  do  business. 
It  shall  be  the  duty  of  the  various  district  attorneys,  under  the 
direction  of  the  Attorney-General  of  the  United  States,  to  prosecute 
for  the  recovery  of  forfeitures.  The  costs  and  expenses  of  such  pros- 
ecution shall  be  paid  out  of  the  appropriation  for  the  expenses  of 
the  courts  of  the  .United  States. 

Any  officer  or  employee  of  the  commission  who  shall  make  public 
any  information  obtained  by  the  commission  without  its  authority, 
unless  directed  by  a  court,  shall  be  deemed  guilty  of  a  misdemeanor, 
and,  upon  conviction  thereof,  shall  be  punished  by  a  fine  not  exceed- 
ing $5,000,  or  by  imprisonment  not  exceeding  one  year,  or  by  fine 
and  imprisonment,  in  the  discretion  of  the  court. 

Sec.  11.  Nothing  contained  in  this  Act  shall  be  construed  to  pre- 
vent or  interfere  with  the  enforcement  of  the  provisions  of  the 
anti-trust  Acts  or  the  Acts  to  regulate  commerce,  nor  shall  anything 
contained  in  the  Act  be  construed  to  alter,  modify,  or  repeal  the 
said  anti-trust  Acts  or  the  Acts  to  regulate  commerce  or  any  part  or 
parts  thereof. 


COMBINATIONS   IN    IMPORT   TRADE       141 


IV.  Combinations  in  Import  Trade 

Act  of  August  27,  1894,  Chap.  349  (Wilson  tariff  act)  as 
amended  by  Act  of  February  12,  1913,  Chap.  40 

Sec.  73.  Every  combination,  conspiracy,  trust,  agreement,  or 
contract  is  hereby  declared  to  be  contrary  to  public  policy,  illegal 
and  void  when  the  same  is  made  by  or  between  two  or  more  persons 
or  corporations  either  of  whom,  as  agent  or  principal,  is  engaged  in 
importing  any  article  from  any  foreign  country  into  the  United 
States,  and  when  such  combination,  conspiracy,  trust,  agreement,  or 
contract  is  intended  to  operate  in  restraint  of  lawful  trade,  or  free 
competition  in  lawful  trade  or  commerce,  or  to  increase  the  market 
price  in  any  part  of  the  United  States  of  any  article  or  articles  im- 
ported or  intended  to  be  imported  into  the  United  States,  or  of  any 
manufacture  into  which  such  imported  article  enters  or  is  intended 
to  enter.  Every  person  who  is  or  shall  hereafter  be  engaged  in  the 
importation  of  goods  or  any  commodity  from  any  foreign  country  in 
violation  of  this  section  of  this  Act,  or  who  shall  combine  or  conspire 
with  another  to  violate  the  same,  is  guilty  of  a  misdemeanor,  and  on 
conviction  thereof  in  any  court  of  the  United  States,  such  person 
shall  be  fined  in  a  sum  not  less  than  one  hundred  dollars  and  not 
exceeding  five  thousand  dollars,  and  shall  be  further  punished  by 
imprisonment,  in  the  discretion  of  the  court,  for  a  term  not  less  than 
three  months  nor  exceeding  twelve  months. 

Sec.  74.  The  several  [circuit  courts]  ^  of  the  United  States  are 
hereby  invested  with  jurisdiction  to  prevent  and  restrain  violations 
of  section  seventy-three  of  this  Act;  and  it  shall  be  the  duty  of  the 
several  district  attorneys  of  the  United  States,  in  their  respective 
districts,  under  the  direction  of  the  Attorney-General  to  institute 
proceedings  in  equity  to  prevent  and  restrain  such  violations.  Such 
proceedings  may  be  by  way  of  petitions  setting  forth  the  case  and 
praying  that  such  violations  shall  be  enjoined  or  otherwise  pro- 
hibited. When  the  parties  complained  of  shall  have  been  duly 
notified  of  such  petition,  the  court  shall  proceed,  as  soon  as  may  be, 
to  the  hearing  and  determination  of  the  case;  and  pending  such 
petition  and  before  final  decree,  the  court  may  at  any  time  make 
such  temporary  restraining  order  or  prohibition  as  shall  be  deemed 
just  in  the  premises. 

Sec.  75.  Whenever  it  shall  appear  to  the  court  before  which  any 
proceeding  under  the  seventy-fourth  section  of  this  Act  may  be 

1  See  note,  page  116. 


142  APPENDIX 

pending,  that  the  ends  of  justice  require  that  other  parties  should  be 
brought  before  the  court,  the  court  may  cause  them  to  be  summoned, 
whether  they  reside  in  the  district  in  which  the  court  is  held  or  not; 
and  subpoenas  to  that  end  may  be  served  in  any  district  by  the  mar- 
shal thereof. 

Sec.  76.  Any  property  owned  under  any  contract  or  by  any 
combination,  or  pursuant  to  any  conspiracy,  and  being  the  subject 
thereof,  mentioned  in  section  seventy-three  of  tliis  Act,  imported 
into  and  being  within  the  United  States,  or  being  in  the  course  of 
transportation  from  one  State  to  another,  or  to  or  from  a  Territory 
or  the  District  of  Columbia,  shall  be  forfeited  to  the  United  States, 
and  may  be  seized  and  condemned  by  like  proceedings  as  those  pro- 
vided by  law  for  the  forfeiture,  seizure,  and  condemnation  of  prop- 
erty imported  into  the  United  States  contrary  to  law. 

Sec.  77.  Any  person  who  shall  be  injured  in  his  business  or 
property  by  any  other  person  or  corporation  by  reason  of  anything 
forbidden  or  declared  to  be  unlawful  by  this  Act  may  sue  therefor  in 
any  [circuit  court]  ^  of  the  United  States  in  the  district  in  which  the 
defendant  resides  or  is  found,  without  respect  to  the  amount  in  con- 
troversy, and  shall  recover  threefold  the  damages  by  him  sustained, 
and  the  costs  of  suit,  including  a  reasonable  attorney's  fee. 

(28  Statutes  at  Large,  570;  37  Statutes  at  Large,  667.) 

V.   Use  of  the  Panama  Canal 

Act  of  August  24,  1913,  Chap.  390  (Panama  Canal  Act) 

Sec.  1L  No  vessel  permitted  to  engage  in  the  coastwise  or 
foreign  trade  of  the  United  States  shall  be  permitted  to  enter  or  pass 
through  said  canal  if  such  ship  is  owned,  chartered,  operated,  or 
controlled  by  any  person  or  company  wliich  is  doing  business  in 
violation  of  the  provisions  of  the  Act  of  Congress  approved  July 
second,  eighteen  hundred  and  ninety,  entitled  "  An  Act  to  protect 
trade  and  commerce  against  unlawful  restraints  and  monopohes," 
or  the  provisions  of  section  seventy-three  to  seventy-seven,  both 
inclusive,  of  an  Act  approved  August  twenty-seventh,  eighteen 
hundred  and  ninety-four,  entitled  "  An  Act  to  reduce  taxation,  to 
provide  revenue  for  the  Government,  and  for  other  purposes,"  or 
the  provisions  of  any  other  Act  of  Congress  amending  or  supplement- 
ing the  said  act  of  July  second,  eighteen  hundred  and  ninety,  com- 
monly known  as  the  Sherman  Anti-trust  Act,  and  amendments 
thereto,  or  said  sections  of  the  Act  of  August  twenty-seventh, 

•  See  note,  page  110. 


EXPEDITION   OF   PROCEEDINGS  143 

eighteen  hundred  and  ninety-four.  The  question  of  fact  may  be 
determined  by  the  judgment  of  any  court  of  the  United  States  of 
competent  jurisdiction,  in  any  cause  pending  before  it  to  which  the 
owners  or  operators  of  such  ship  are  parties.  Suit  may  be  brought 
by  any  shipper  or  by  the  Attorney-General  of  the  United  States. 
(37  Statutes  at  Large,  567.) 

VI.   Expedition  of  Proceedings 

Act  of  February  11,  1903,  Chap.  544,  as  amended  by 
Act  of  June  25,  1910,  Chap.  428 

Sec.  1.  In  any  suit  in  equity  pending  or  hereafter  brought  in  any 
[circuit  court] '  of  the  United  States  under  the  Act  entitled  "  An  Act 
to  protect  trade  and  commerce  against  unlawful  restraints  and 
monopolies,"  approved  July  second,  eighteen  hundred  and  ninety, 
"An  Act  to  regulate  commerce,"  approved  February  fourth,  eighteen 
hundred  and  eighty-seven,  or  any  other  Acts  having  a  like  purpose 
that  hereafter  may  be  enacted,  wherein  the  United  States  is  com- 
plainant, the  Attorney-General  may  file  with  the  clerk  of  such  court 
a  certificate  that,  in  his  opinion,  the  case  is  of  general  public  impor- 
tance, a  copy  of  which  shall  be  immediately  furnished  by  such  clerk 
to  each  of  the  [circuit]  ^  judges  of  the  circuit  in  which  the  case  is 
pending.  Thereupon  such  case  shall  be  given  precedence  over 
others  and  in  every  way  expedited,  and  be  assigned  for  hearing  at  the 
earliest  practicable  da}^,  before  not  less  than  three  of  the  circuit 
judges  of  said  circuit,  if  there  be  three  or  more;  and  if  there  be  not 
more  than  two  circuit  judges,  then  before  them  and  such  district 
judge  as  they  may  select;  or,  in  case  the  full  court  shall  not  at  any- 
time be  made  uj)  by  reason  of  the  necessary  absence  or  disqualifica- 
tion of  one  or  more  of  the  said  circuit  judges,  the  Justice  of  the 
Supreme  Court  assigned  to  that  circuit,  or  the  other  circuit  judge  or 
judges  may  designate  a  district  judge  or  judges  within  the  circuit 
who  shall  be  competent  to  sit  in  said  court  at  the  hearing  of  said 
suit.  In  the  event  the  judges  sitting  in  such  case  shall  be  equally 
divided  in  opinion  as  to  the  decision  or  disposition  of  said  cause,  or  in 
the  event  that  a  majority  of  said  judges  shall  be  unable  to  agree 
upon  the  judgment,  order,  or  decree  finally  disposing  of  said  case  in 
said  court  which  should  be  entered  in  said  cause,  then  they  shall 
immediately  certifj^  that  fact  to  the  Chief  Justice  of  the  United 
States,  who  shall  at  once  designate  and  appoint  some  circuit  judge 
to  sit  with  said  judges  and  to  assist  in  determining  said  cause. 

1  See  note,  page  116. 


144  APPENDIX 

Such  order  of  the  Chief  Justice  shall  be  immediately  transmitted 
to  the  clerk  of  the  circuit  court  in  which  said  cause  is  pending,  and 
shall  be  entered  upon  the  minutes  of  said  court.  Thereupon  said 
cause  shall  at  once  be  set  down  for  reargument  and  the  parties 
thereto  notified  in  writing  by  the  clerk  of  said  court  of  the  action  of 
the  court  and  the  date  fixed  for  the  reargument  thereof.  The  pro- 
visions of  this  section  shall  apply  to  all  causes  and  proceedings  in  all 
courts  now  pending,  or  wliich  may  hereafter  be  brought. 

Sec.  2.  In  every  suit  in  equity  pending  or  hereafter  brought  in 
any  [circuit  court]  ^  of  the  United  States  under  any  of  said  Acts, 
wherein  the  United  States  is  complainant,  including  cases  submitted 
but  not  yet  decided,  an  appeal  from  the  final  decree  of  the  circuit 
court  will  lie  only  to  the  Supreme  Court  and  must  be  taken  within 
sixty  days  from  the  entry  thereof :  Provided,  That  in  any  case  where 
an  appeal  may  have  been  taken  from  the  final  decree  of  a  circuit 
court  to  the  circuit  court  of  appeals  before  this  Act  takes  effect,  the 
case  shall  proceed  to  a  final  decree  therein,  and  an  appeal  may  be 
taken  from  such  decree  to  the  Supreme  Court  in  the  manner  now 
provided  by  law.  (32  Statutes  at  Large,  823;  36  Statutes  at 
.Large,  854.) 

VII.   Witnesses  and  Testimony 

Act  of  February  25,  1903,  Chap.  755  (Legislative, 
Executive  and  Judicial  Appropriation  Act  for  the  fiscal  year  1904) 

Sec.  1.  .  .  .  For  the  enforcement  of  the  provisions  of  the  Act 
entitled  "  An  Act  to  regulate  commerce,"  approved  February  fourth, 
eighteen  hundred  and  eighty-seven,  and  all  Acts  amendatory  thereof 
or  supplemental  thereto,  and  of  the  Act  entitled  "  An  Act  to  protect 
trade  and  commerce  against  unlawful  restraints  and  monopolies," 
approved  July  second,  eighteen  hundred  and  ninety,  and  all  Acts 
amendatory  thereof  or  supplemental  thereto,  and  sections  seventy- 
three,  seventy-four,  seventy-five,  and  sevent}''-six,  of  the  Act  entitled 
"  An  Act  to  reduce  taxation,  to  provide  revenue  for  the  government, 
and  other  purposes,"  approved  August  twenty-seventh,  eighteen 
hundred  and  ninety-four,  the  sum  of  five  hundred  thousand  dollars, 
to  be  hnmediately  available,  is  hereby  appropriated,  out  of  any 
money  in  the  treasury  not  heretofore  appropriated,  to  be  expended 
under  the  direction  of  the  Attorney-General  in  the  employment  of 
special  counsel  and  agents  of  the  Department  of  Justice  to  conduct 
proceedings,  suits  and  prosecutions  under  said  Acts  in  the  courts  of 
the  United  States: 

'  See  note,  page  116. 


WITNESSES   AND   TESTIMONY  145 

Provided,  That  no  person  shall  be  prosecuted  or  be  subjected  to 
any  penaltj^  or  forfeiture  for  or  on  account  of  any  transaction,  mat- 
ter, or  thing  concerning  which  he  may  testify  or  produce  evidence, 
documentary  or  otherwise,  in  any  proceeding,  suit  or  prosecution 
under  said  Acts : 

Provided  further,  That  no  person  so  testifying  shall  be  exempt 
from  prosecution  or  punishment  for  perjury  committed  in  so  testify- 
mg.     (32  Statutes  at  Large,  904.) 

Act  of  June  30,  1906,  Chap.  3920 

Under  the  immunity  provisions  in  the  Act  entitled  "  An  Act  in 
relation  to  testimony  before  the  Interstate  Conmierce  Commission  " 
and  so  forth,  approved  February  eleventh,  eighteen  hundred  and 
mnety-three,  in  section  six  of  the  Act  entitled  "  An  Act  to  estabUsh 
the  Department  of  Commerce  and  Labor,"  approved  February 
fourteenth,  nineteen  hundred  and  three,  and  in  the  Act  entitled  "  An 
Act  to  further  regulate  commerce  with  foreign  nations  and  among 
the  States,"  approved  February  nineteenth,  nineteen  hundred  and 
three,  and  in  the  Act  entitled  "  An  Act  making  appropriations  for 
the  legislative,  executive,  and  judicial  expenses  of  the  Government 
for  the  fiscal  year  ending  June  thirtieth,  nineteen  hundred  and  four, 
and  for  other  purposes,"  approved  February  twenty-fifth,  nineteen 
hundred  and  three,  immunity  shaU  extend  only  to  a  natural  person 
who,  m  obedience  to  a  subpoena,  gives  testimony  under  oath  or  pro- 
duces evidence,  documentary  or  otherwise,  under  oath. 

(34  Statutes  at  Large,  798.) 

Act  of  March  3,  1913,  Chap.  114 

An  Act  Providing  for  Publicity  in  Taking  Evidence  under  ' 

the  Act  of  July  second,  eighteen  hundred  and  ninety 

In  the  taking  of  depositions  of  witnesses  for  use  in  any  suit  in 
equity  brought  by  the  United  States  under  the  Act  entitled  "  An 
Act  to  protect  trade  and  commerce  against  unlawful  restraints  and 
monopohes,"  approved  July  second,  eighteen  hundred  and  ninety, 
and  in  the  hearings  before  any  examiner  or  special  master  appointed 
to  take  testimony  therein,  the  proceedings  shaU  be  open  to  the  pubhc 
as  freely  as  are  trials  in  open  court;  and  no  order  excluding  the 
pubhc  from  attendance  on  any  such  proceedings  shall  be  vahd  or 
enforceable.     (37  Statutes  at  Large,  73L) 


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